The potassium industry is perfectly competitive. Firms act as price takers and each firm in the industryoperates only one plant. The following table shows data on incumbent plants in the potassium industry:AverageUnitVariableCost AnnualFixedCosts(millionsper year) Requiredinvestmentto constructnew plant(millions) Salvagevalue ofplantCapacity ofa plant(million tonsper year) Numberofplants $4 per ton $6 $70 $0 1 40 Also: Average variable cost is constant for any output up to full capacity operation. Firms have a cost of capital of 10 percent. All new plants that might be built would be identical to existing plants Market demand is given by the equation, Q = 160 – 5P, where the price P is measured in dollarsper ton and quantity Q is measured in millions of tons. What are the entry price and long-run equilibrium in this industry?
The potassium industry is perfectly competitive. Firms act as price takers and each firm in the industry
operates only one plant. The following table shows data on incumbent plants in the potassium industry:
Average
Unit
Variable
Cost
Annual
Fixed
Costs
(millions
per year)
Required
investment
to construct
new plant
(millions)
Salvage
value of
plant
Capacity of
a plant
(million tons
per year)
Number
of
plants
$4 per ton $6 $70 $0 1 40
Also:
Average variable cost is constant for any output up to full capacity operation.
Firms have a cost of capital of 10 percent.
All new plants that might be built would be identical to existing plants
Market demand is given by the equation, Q = 160 – 5P, where the price P is measured in dollars
per ton and quantity Q is measured in millions of tons.
What are the entry price and long-run equilibrium in this industry?
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