Principles of Microeconomics (12th Edition)
12th Edition
ISBN: 9780134081199
Author: CASE
Publisher: PEARSON
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Chapter 9.A, Problem 3P
To determine
Supply and
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It can be argued that ‘a sustained increase in the prices of a product and profitability of businesses producing that product, in an industry where entry of new firms is possible, causes that industry to expand and eventually brings an end to high prices and above average returns’. Explain this phenomenon.
An industry currently has 100 firms, each of which has fixed costs of $8 and average variable costs as follows:
The equilibrium price is currently $15.
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 , quantity demanded will , and the quantity supplied by each firm will .
In perfectly competitive markets, the market long-run supply curve is:
downward sloping if the average costs for all firms fall as the industry expands
downward sloping in quantity if there are diseconomies of scale
always horizontal
upward sloping for firms with large fixed cost
none of the other answers are correct
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.
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Principles of Microeconomics (12th Edition)
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- For a perfectly competitive firm, at profit maximization market price exceeds marginal cost. total revenue is maximized. marginal revenue equals marginal cost. production must occur where average cost is minimized.arrow_forwardAssume the market for chips is perfectly competitive. The market supply and demand curves for chips are given as follows: supply curve: P = 0.000002Q demand curve: P = 11 - 0.00002Q The short run marginal cost curve for a typical chips factory is: MC = 0.1 + 0.0009Q Determine the equilibrium price for chips. Determine the profit maximizing short run equilibrium level of output for a chips factory. Assuming that all of the chips factories are identical, how many chips factories are producing chips?arrow_forwardIn a perfectly competitive market: marginal costs will be less than average costs. all firms will produce an equal amount of output. market price will equal the total cost of production. total industry costs of production are minimized.arrow_forward
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