Consider a perfectly competitive market where all firms have identical long-run marginal costs given by LRMC...

Consider a perfectly competitive market where all firms have identical long-run marginal costs given by LRMC = 10. Furthermore, suppose that the market demand curve is given by ? = 3000 − 50?.
a. Determine the long-run equilibrium quantity and price in this market.
b. Determine the number of firms that operate in this market in the long-run, assuming that a typical firm produces 25 units of output.

Solutions

Expert Solution

LRMC= 10

Q = 3000-50P

P= 60 -0.02Q

(a) At the long run equilibrium : P=LRMC =LRATC , here average cost is not given. So , equate P=LRMC , we get :

60- 0.02Q = 10

0.02Q = 50

Q = 2500 (Long run equilibrium quantity)

P= $10 (Long run equilibrium price)

(b) If each firm produces 25 units of output. And the total output = 2500 units.

This implies there are 2500/25 = 100 firms that operate in the market in the long run.

Rahul Sunny answered 1 year ago

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