Question

A firm in a perfectly competitive constant cost industry has total costs in the short run...

A firm in a perfectly competitive constant cost industry has total costs in the short run given by: TC = 2q2 + 2q + 72 q ≥ 2

where q is output per day and TC is the total cost per day in dollars. The firm has fixed costs of $54 (already included in the TC equation above). The TC equation generates minimum average costs of $26 (per unit) at q = 6. You are also told that this size firm generates minimum long run average costs (that is, minimum LAC occurs at q = 6, with min LAC = $26).

Suppose that the demand curve facing the industry is given by the equation P = 44 - .004Q where P is the price per unit and Q is the number of units demanded per day. suppose that we are now in the long run.

The number of firms in the industry, rounding to the nearest integer, is:

A) 0 B) 2917 C) 2417 D) 300 E) 750 F) 400

G) 1250 H) 292 I) 583 J) none of the above

Homework Answers

Answer #1

Since this is a perfectly competitive firm, the firm should produce in the long-run where average cost (AC) becomes the minimum.

In the long-run, LAC is $26. This is to be placed as P in the industry demand equation in order to get Q.

Given,

P = 44 – 0.004Q

26 = 44 – 0.004Q

0.004Q = 44 – 26

0.004Q = 18

Q = 18 / 0.004 = 4,500

Now given, q at LAC is 6.

Number of firms = Q / q

                            = 4,500 / 6

                            = 750

Answer: E

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are a producer in a constant-cost perfectly competitive industry. Your long-run total, marginal, and average...
You are a producer in a constant-cost perfectly competitive industry. Your long-run total, marginal, and average costs are given by TC = 2Q² + 128, MC = 4Q, and ATC = 2Q+ (128/Q). What is the long-run equilibrium price?
A perfectly competitive firm in the short run has Total Cost and Marginal Cost functions given...
A perfectly competitive firm in the short run has Total Cost and Marginal Cost functions given by TC(Q)=9+Q+Q2 and MC(Q)=1+2Q, respectively. The firm faces a price of P=$17. Determine the output that the firm will produce and the profit. Show the solution graphically.
Suppose that each firm in a competitive industry has the following cost curves: Total cost: TC...
Suppose that each firm in a competitive industry has the following cost curves: Total cost: TC = 32 + 1⁄2 Q2; where Q is the individual firm’s quantity produced. MC=Q. Assume the market price is $14 per unit. If the market price falls, how much will each firm produce in the long run? a. 32 b. 8 c. 11 d. 64
suppose that perfectly competitive baseball industry has a large number of potencial entrants. each firm has...
suppose that perfectly competitive baseball industry has a large number of potencial entrants. each firm has the same cost structure such that the long run average cost is minimized at 210 baseball per day (q= 210). the firms minimum long run average cost is $0.10. total market demand is given by Qd= 400 - 100p. A. what is the industry’s long run supply schedule? B. what is the long run equilibrium price (P*) and total industry output (Q*)? C. graph...
Determine whether the following perfectly competitive firm should produce output in the short run or temporarily...
Determine whether the following perfectly competitive firm should produce output in the short run or temporarily shut down, given: P = $350 TC = 3,250 + 100Q + 2Q2 where, Q is units produced per month If the firm does not operate, it will lose its $3,250 of fixed costs. What profit or loss will the firm have if it operates where MR = SMC? Does this profit or loss check with your decision on whether to produce or temporarily...
Suppose there is a perfectly competitive industry in Dubai, where all the firms are identical. All...
Suppose there is a perfectly competitive industry in Dubai, where all the firms are identical. All the firms in the industry sell their products at 100 AED. The market demand for this product is given by the equation: (Kindly solve clearly) Q = 1000 – 4P Furthermore, suppose that a representative firm’s total cost is given by the equation: TC = 1250 + 2Q2 What is the inverse demand function for this market? Calculate the MC function? Calculate the MR...
Suppose a representative firm in a perfectly competitive industry has the following total cost of production...
Suppose a representative firm in a perfectly competitive industry has the following total cost of production in the short run: TC = Q3 - 60Q2 + 3000Q. a) What will be the long run equilibrium quantity for the firm? What will be the long run equilibrium price in this industry? b) If the industry demand is given by QD = 12400 - 4P. how many firms will be active in the long- run equilibrium? c) Suppose the firm faces a...
2. Suppose a representative firm producing in a perfectly competitive industry has the following cost function:...
2. Suppose a representative firm producing in a perfectly competitive industry has the following cost function: C(q) = q2 + 8q + 36 a. Solve for the firm’s average cost function. b. At what level of q is average cost minimized (i.e. what is the minimum efficient scale for the firm)? What is the value of average cost at this level of q? c. Suppose all firms in this industry are identical and the demand function for this industry is...
10.   The widget industry is perfectly competitive. The lowest point on the long-run average cost curve...
10.   The widget industry is perfectly competitive. The lowest point on the long-run average cost curve of each of the identical widget producers is K4, and this minimum point occurs at an output of 1,000 widgets per month. When the optimal scale of a firm’s plant is operated to produce 1, 150 widgets per month, the short run   average cost of each firm is K5. The market demand curve for widgets Is. QD   = 150, 000 – 5,000 P Where...
Suppose a representative firm producing in a perfectly competitive industry has the following cost function: C(q)...
Suppose a representative firm producing in a perfectly competitive industry has the following cost function: C(q) = q2 + 8q + 36 a. Solve for the firm’s average cost function. b. At what level of q is average cost minimized (i.e. what is the minimum efficient scale for the firm)? What is the value of average cost at this level of q? c. Suppose all firms in this industry are identical and the demand function for this industry is as...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT