All firms in a competitive industry have the following long-run total cost curve:
C(q) = q3 – 10q2 + 36q
where q is the output of the firm.
a. Compute the long run equilibrium price. What does the long-run supply curve look like if this is a constant cost industry? Explain.
b. Suppose the market demand is given by Q = 111 – p. Determine the long-run equilibrium number of firms in the industry.
a. Long run equilibrium is determined by (1 ) the minimum of the AC curves, and (2 ) the demand equation.
The AC is at a minimum where AC = MC:
Q = 5, AC = MC = 11
Therefore, the long run price will be $11 and each firm will produce 5 units.
b. The market quantity (from demand) is 100 and so 20 firms will exist in this market. The long run supply curve is flat at $11 because the price will always equal this due to free entry and exit of firms.
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When you choose the solution that has the greatest benefit for you
a. implicit favorite model b. bounded rationality model c. econological model d. none of the above
? Scalpers (people selling tickets at a price above the stated price, P*) were spotted at this year’s Super Bowl game. This suggest that
A. P* is less than the equilibrium price. B. P* is greater than the equilibrium price. C. P* is the equilibrium price. D. it’s not possible to determine anything about the equilibrium price with this information.