A perfectly competitive industry has a large number of potential entrants. Each firm has an identical cost structure such that long-run average cost is minimized at an output of 20 units (qi) =20. The minimum average cost is $10 per unit. Total market demand is given by ? = 1,500 − 50?a. What is the industry’s long-run supply schedule? b. What is the long-run equilibrium price (p*)? The total industry output (Q*)? The output of each firm (O*)? The number of firms? The profits of each firm? c. The short-run total cost function associated with each firm’s long-run equilibrium output is given by ?(?) = 0.5? 2 − 10? + 200 Calculate the short-run average and marginal cost function. At what output level does short run average cost reach a minimum?
A
structure such that long-run average cost is minimized at an output of 20 units (qi) =20. The minimum
average cost is $10 per unit.
Total market
b. What is the long-run
(O*)? The number of firms? The profits of each firm?
c. The short-run total cost function associated with each firm’s long-run equilibrium output is given by
?(?) = 0.5?
2 − 10? + 200
Calculate the short-run average and marginal cost function. At what output level does short run average
cost reach a minimum?
d. Calculate the short-run supply function for each firm and the industry short-run supply function.
e. Suppose now that the
demand curve, answer part (b) for the very short run when firms cannot change their outputs.
f. In the short run, use the industry short-run supply function to recalculate the answers to (b).
g. What is the new long-run equilibrium for the industry?
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