Question

An industry currently has 100 firms, each of which has fixed costs of $15 and average variable costs as follows:

Complete the following table by deriving the total cost, marginal cost, and average total cost for each quantity from 1 to 6.

QUANITY	AVERAGE VARIABLE COST (DOLLARS)	TOTAL COST (DOLLARS)	MARGINAL COST (DOLLARS)	AVERAGE TOTAL COST (DOLLARS)
0	---------------------------	15	???	------------------------
1	2	???	???	11.50/15/17
2	4	???	???	11.50/15/23
3	6	???	???	11/11.50/33.50
4	8	???	???	11.75/15/33
5	10	???	???	13/14.50/47
6	12	???	???	13/14.50/22

The equilibrium price is currently $20.

Each firm produces _____ ??? units, so the total quantity supplied in the market is ____??? units.

In the long run, firms can enter and exit the market, and all entrants have the same costs as in the previous table.

As this market makes the transition to its long-run equilibrium, the price will FALL OR RISE , quantity demanded will RISE OR FALL , and the quantity supplied by each firm will FALL OR RISE .

Answer 1

Table is completed below

Q	TVC	TFC	TC	AFC	AVC	ATC	MC
0	0	15	15
1	2	15	17	15.00	2.00	17.00	2.00
2	8	15	23	7.50	4.00	11.50	6.00
3	18	15	33	5.00	6.00	11.00	10.00
4	32	15	47	3.75	8.00	11.75	14.00
5	50	15	65	3.00	10.00	13.00	18.00
6	72	15	87	2.50	12.00	14.50	22.00

Given that equilibrium price is currently $20, a firm will compare this price with the MC. It finds that P is closed to MC when 5 units are produced.

Each firm produces 5 units, so the total quantity supplied in the market is 5*100 = 500 units. Each firm is earning profit so in the long run firms will enter.

As this market makes the transition to its long-run equilibrium, the price will FALL , quantity demanded will RISE and the quantity supplied by each firm will FALL.