Answered: 3. Suppose all firms in a competitive…

3. Suppose all firms in a competitive industry are operating at output levels for which P equals LRAC. Are they necessarily in long run equilibrium? Explain

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Firms In Competitive Markets

Section: Chapter Questions

Problem 7QR

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3. Suppose all firms in a competitive industry are operating at output levels for which P equals LRAC. Are they
necessarily in long run equilibrium? Explain

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. A firm in a perfectly competitive industry currently faces a market price of $20 and is maximizing profit by producing 500 units of output at this price. The firm’s total costs are $14,000, of which $5,000 are fixed costs. a) How much profit is the firm making? (Show how you determine this.) b) Should the firm continue to produce in the short run? Explain fully. c) Should the firm continue to produce in the long run? Explain clearly WHY the long run decision may be different than the short run decision, assuming the firm expects no changes in demand conditions.
C. Table below shows some cost data for a perfectly competitive firm i. Is the firm operating in the short run or long run? How do you know?ii. At a market price of $32, what would be the output of the firm? Does this firm makeeconomic profit or loss at this price level? iii. If the market price is $32, would the firm shut down or keep operating? Why? iv. Based on your answer above, would firms enter or exit the market in the long run? What will happen to the market price?
Assume that the gold-mining industry is perfectly competitive. a) Illustrate a long-run equilibrium using diagrams for the gold market and for a representative gold mine. b) Suppose that an increase in jewelry demand induces a surge in the demand for gold. Using your diagrams, show what happens in the short run to the gold market and to each existing gold mine. c) If the demand for gold remains high, what would happen to the price over time? Specifically, would the new long-run equilibrium price be above, below, or equal to the short-run equilibrium price in part b)? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.