Question

THE MARKET FOR APPLE PIES IN THE CITY ECTENCIA IS COMPETITIVE AND HAS THE FOLLOWING DEMAND SCHEDULE.

DEMAND SCHEDULE PRICE (DOLLARS)	DEMAND SCHEDULE QUANITY DEMANDED (PIES)
1	1200
2	1100
3	1000
4	900
5	800
6	700
7	600
8	500
9	400
10	300
11	200
12	100
13	0

EACH PRODUCER IN THE MARKET HAS A FIXED COST OF $9 AND THE FOLLOWING MARGINAL COST.

QUANITY (PIES)	MARGINAL COST (DOLLARS)
1	2
2	4
3	6
4	8
5	10
6	12

COMPLETE THE FOLLOWING TABLE BY COMPUTING THE TOTAL COST AND AVERAGE TOTAL COST FOR EACH QUANITY PRODUCED.

QUANITY (PIES)	TOTAL COST (DOLLARS)	AVERAGE TOTAL COST (DOLLARS)
1	???	???
2	???	???
3	???	???
4	???	???
5	???	???
6	???	???

THE PRICE OF THE PIE IS NOW $11

AT A PRICE OF $11, ___??? PIES ARE SOLD IN THE MARKET. EACH PRODUCER MAKES___ ???PIES. SO THERE ARE ____?? PRODUCERS IN THIS MARKET, EACH MAKING A PROFIT OF $____???

TRUE OR FALSE: THE MARKET IS IN LONG RUN EQUILIBRIUM

SUPPOSE IN THE LONG RUN THERE IS FREE ENTRY AND EXIT.

IN THE LONG RUN, EACH PRODUCER EARNS A PROFIT OF $_____???. THE MARKET PRICE IS $____???. AT THIS PRICE, ___??? PIES ARE SOLD IN THIS MARKET, AND EACH PRODUCER MAKES ___??? PIES, SO THERE ARE ____??? PRODUCERS OPERATING.

Answer 1

QUANITY (PIES)	MARGINAL COST (DOLLARS)	TVC(MCn-MCn-1)	TFC	TC (TFC+TVC)	ATC = TC/Q
1	2	2	9	11	11
2	4	6	9	15	7.5
3	6	12	9	21	7
4	8	20	9	29	7.25
5	10	30	9	39	7.8
6	12	42	9	51	8.5

At a price of $11, quantity demanded is 200. Sincemarginal revenue is $11(MR=MC) , each FIrm will choose to produce 5 pies. Therefore, there will be 40 FIRms (= 200/5). Eachproducer will earn totaL Profit of

total revenue - total cost = 11*5-39 = (55-39) = 16

TRUE OR FALSE: THE MARKET IS IN LONG RUN EQUILIBRIUM

false since profit 16>0 not a normal profit which is long run profit so it is not in long run equilibrium'

positive profits so firms will tend to enter where supply increase and prices falls

price falls unless P= minimum ATC(in long run)

price for long run will be 7 as per chart

quantity sold in whole market = 600

each producer makes = 3 units

no. of firms = 600/3= 200 firms or producers operating