Question

In: Economics

Quantity Marginal Cost ATC 0 — —— 1 $3 $8.00 2 2 5 3 3 4.33...

Quantity	Marginal Cost	ATC
0	—	——
1	$3	$8.00
2	2	5
3	3	4.33
4	4	4.25
5	5	4.40
6	6	4.67
7	8	5.15
8	9	5.62
9	10	6.11
10	12	6.70

Use the table above to answer the following questions. Assume the table above describes the costs for a typical firm in a perfect competition industry and the market equilibrium price is $9.

A) How many units should this firm produce ?

B) What are the firm’s profits ? You must explain how you determined your answer.

C)What is the long run equilibrium price ?

D) If 2024 units are being sold in the market in the long run, how many identical firms are there in the marketing the long run..

Could I get some step by step help on this please? Thank you in advance. :)

Expert Solution

A) The firm should produce 8 units

In a perfectly competitive market, the profit of a firm is maximizes when equilibrium price is equal to the marginal cost of the firm. Equilibrium market price is $9. The firm's marginal cost is equal to this at the quantity level 8. So, the firm should produce 8 units

B) Profit = $27.04

Total revenue = price*quantity = $9*8 = $72

At quantity 8, ATC = $5.62

Total cost = ATC*quantity = $5.62*8 = $44.96

Profit = Total revenue - total cost

= $72-$44.96 = $27.04

C) Long run equilibrium price = $4.25

The long run equilibrium price is equal to the minimum of the ATC. ATC minimum is $4.25. At this level each firm produces quantity 4 units.

D) 506 identical firms

From twh part C, we have known that at long run equilibrium, each firm produces at the minimum of ATC and each firm produces 4 units (ATC is minimised at the quantity 4). If the total output is 2024, then the number of identical firms is equal to 2024/4 = 506.

Rahul Sunny answered 2 years ago

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