A perfectly competitive industry currently has 100 identical firms in the short run, each of which has fixed costs of $8 and average variable costs as follows: Quantity Average variable cost Marginal cost Average total cost Total cost N/A N/A N/A 1 5 5 6 11 a) Complete the above table by computing the total cost, marginal cost, and average total cost for each quantity from 1 to 6. Submit the completed table in your answer. b) Suppose the market equilibrium price is currently $15. How much will each firm produce in the short run? What is the aggregate supply in this market in the short run? c) The initial market equilibrium price is still $15, but we now consider what will happen in the long run, when firms can freely enter and exit the market. Suppose that all entrants have the same costs, and that these costs are as in the previous table. As this industry makes the transition from short run equilibrium to its long-run equilibrium, how will the new equilibrium price change? Will it increase or decrease? Will the quantity supplied by each firm change? Will it increase or decrease? Will there be any change on the demand side? 2. 3. 4.
A perfectly competitive industry currently has 100 identical firms in the short run, each of which has fixed costs of $8 and average variable costs as follows: Quantity Average variable cost Marginal cost Average total cost Total cost N/A N/A N/A 1 5 5 6 11 a) Complete the above table by computing the total cost, marginal cost, and average total cost for each quantity from 1 to 6. Submit the completed table in your answer. b) Suppose the market equilibrium price is currently $15. How much will each firm produce in the short run? What is the aggregate supply in this market in the short run? c) The initial market equilibrium price is still $15, but we now consider what will happen in the long run, when firms can freely enter and exit the market. Suppose that all entrants have the same costs, and that these costs are as in the previous table. As this industry makes the transition from short run equilibrium to its long-run equilibrium, how will the new equilibrium price change? Will it increase or decrease? Will the quantity supplied by each firm change? Will it increase or decrease? Will there be any change on the demand side? 2. 3. 4.
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 11PA: Suppose that each firm in a competitive industry has the following costs: Total cost: TC = 50 + q2...
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