Question

The market demand schedule for a commodity is as follows:

Price (dollars per case)	Quantity Demanded (cases per week)
$5.40	50,200
$6.40	45,200
$7.40	40,000
$8.40	35,000
$9.40	30,000
$10.40	24,800
$11.40	19,800
$12.40	14,800

The market is perfectly competitive and each firm shares similar production and technology and as a result has a cost structure as follows:

Output (cases per week)	Marginal Cost (dollars per case)	Average Variable Cost (dollars per case)	Average Total Cost (dollars per case)
150	$6.00	$8.80	$16.54
200	$6.40	$7.80	$13.60
250	$7.00	$7.00	$11.64
300	$7.65	$7.10	$10.97
350	$8.40	$7.20	$10.52
400	$10.00	$7.50	$10.40
450	$12.40	$8.00	$10.58
500	$12.70	$9.00	$11.32

Initially, there are 100 firms in the industry.

What is the market price in the short run?

What is the market output in the short run?

What is the output of each firm in the short run?

Calculate the profit for each firm at the current market price.

What is the shutdown price? Explain why a firm would operate at a loss in the short-run (use numbers from this problem to illustrate).

What is the long run price in the market?

How many firms will serve the market in the long run?

Answer 1