An industry currently has 100 firms, each of whichhas fixed cost of $16 and average variable cost asfollows:Quantity Average Variable Cost1 $12 23 34 45 56 6a. Compute a firm’s marginal cost and average totalcost for each quantity from 1 to 6.b. The equilibrium price is currently $10. How muchdoes each firm produce? What is the total quantitysupplied in the market?c. In the long run, firms can enter and exit themarket, and all entrants have the same costs asabove. As this market makes the transition to itslong-run equilibrium, will the price rise or fall?Will the quantity demanded rise or fall? Will thequantity supplied by each firm rise or fall? Explainyour answers.d. Graph the long-run supply curve for this market,with specific numbers on the axes as relevant.
An industry currently has 100 firms, each of which
has fixed cost of $16 and
follows:
Quantity Average Variable Cost
1 $1
2 2
3 3
4 4
5 5
6 6
a. Compute a firm’s marginal cost and average total
cost for each quantity from 1 to 6.
b. The
does each firm produce? What is the total quantity
supplied in the market?
c. In the long run, firms can enter and exit the
market, and all entrants have the same costs as
above. As this market makes the transition to its
long-run equilibrium, will the price rise or fall?
Will the quantity demanded rise or fall? Will the
quantity supplied by each firm rise or fall? Explain
your answers.
d. Graph the long-run supply curve for this market,
with specific numbers on the axes as relevant.
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