3) Perfectly competitive markets # of Contraptions Total Cost 0 500 1 580 2 640 3...

3) Perfectly competitive markets

# of Contraptions

Total Cost

0 500
1 580
2 640
3 690
4 730
5 760
6 800
7 850
8 950
9 1200
10 2000
c) If market price equals $100, how many units should be produced? What is revenue? What is profit? Add these columns to your Table too. d) What is the fixed cost? Would the number of units produced change if the fixed cost went down? Why or why not?

e) Firms now exit the contraption market, and contraption price goes up to $250. Graph this result, showing market and firm graph side by side. How many units will a firm with the above cost function produce? What will profit be? (It might be helpful to show a new Table or at least add a couple of columns to the existing one).

f) At this point, will more firms exit, or will new firms start to enter the market? Explain.
g): What is the long run equilibrium price? What is profit? (Show all calculations) Why will firms not leave the market?

Expert Solution

Rahul Sunny answered 2 years ago

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