Question 4 Suppose that the market for gasoline is a perfectly competitive market. All gas station owners face the following long-run average total cost curve: ATC = 0.01q – 1 + 100/q. They are also facing the following long- run marginal cost curve: MC = 0.02g - 1. a. What will the economic profits be in the long run for this industry when it is in (the long-run) equilibrium? What does that imply about the relationship among price, ATC, and MC at the profit-maximizing production level in the long run? b. Assuming that the market is in long-run equilibrium, how much gas will be sold by the firm (assuming the firm is profit-maximizing)? Show all work.

Question 4 Suppose that the market for gasoline is a perfectly competitive market. All gas station owners face the following long-run average total cost curve: ATC = 0.01q – 1 + 100/q. They are also facing the following long- run marginal cost curve: MC = 0.02g - 1. a. What will the economic profits be in the long run for this industry when it is in (the long-run) equilibrium? What does that imply about the relationship among price, ATC, and MC at the profit-maximizing production level in the long run? b. Assuming that the market is in long-run equilibrium, how much gas will be sold by the firm (assuming the firm is profit-maximizing)? Show all work.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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