Firm änd Market In this exercise and the next, we compare a perfectly com etitive market to a monoj.oly. First, consider a perfectly competitive widget industry that h s adjusted to long-run equilibrium: Each firm earns zero economic profit, so there is no incen ve for firms either to enter or to exit. Each firm has chosen a (short run) plant size that allows it to achieve the minimum achievable long-run average cost, so there is no incentive for any firn either to enlarge cr to contract its scale of operation. Let Q = industry output and q = the output of any single firm. There are n identical firms: Q = nq Each firm's short-run total cost is: TC = 90 + 2.5q? Market demand (D) for the product is: P = 60 -- 12Q Write the equations of each firm's marginal cost, average v. riable cost, and average cost. MC = AVC = AC = b. Find the firm's equilibrium level of output (where MC = AC) Calculate equilibrium price and the corresponding values of AVC and AC. (Use the table to ider ify some values for AC.) 4 6. 9 10 AC q* = P* = AVC* = Vequa (n AC* =
Firm änd Market In this exercise and the next, we compare a perfectly com etitive market to a monoj.oly. First, consider a perfectly competitive widget industry that h s adjusted to long-run equilibrium: Each firm earns zero economic profit, so there is no incen ve for firms either to enter or to exit. Each firm has chosen a (short run) plant size that allows it to achieve the minimum achievable long-run average cost, so there is no incentive for any firn either to enlarge cr to contract its scale of operation. Let Q = industry output and q = the output of any single firm. There are n identical firms: Q = nq Each firm's short-run total cost is: TC = 90 + 2.5q? Market demand (D) for the product is: P = 60 -- 12Q Write the equations of each firm's marginal cost, average v. riable cost, and average cost. MC = AVC = AC = b. Find the firm's equilibrium level of output (where MC = AC) Calculate equilibrium price and the corresponding values of AVC and AC. (Use the table to ider ify some values for AC.) 4 6. 9 10 AC q* = P* = AVC* = Vequa (n AC* =
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Firm änd Market
In this exercise and the next, we compare a perfectly com etitive market to a monoj.oly. First,
consider a perfectly competitive widget industry that h s adjusted to long-run equilibrium:
Each firm earns zero economic profit, so there is no incen ve for firms either to enter or to exit.
Each firm has chosen a (short run) plant size that allows it to achieve the minimum achievable
long-run average cost, so there is no incentive for any firm either to enlarge cr to contract its
scale of operation. Let Q = industry output and q = the output of any single firm.
There are n identical firms:
Q = nq
Each firm's short-run total cost is:
TC = 90 + 2.5q?
Market demand (D) for the product is:
P = 60 -- 2Q
Write the equations of each firm's marginal cost, average v. riable cost, and average cost.
MC =
AVC =
AC =
b. Find the firm's equilibrium level of output (where MC = AC) Calculate equilibrium price and the
corresponding values of AVC and AC. (Use the table to ider ify some values for AC.)
4
6.
9
10
AC
q* =
P* =
AVC* =
ev ygua (
AC* =
bailk
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