Question

Consider the following perfectly competitive market. Let x represent units of output. Suppose that the level of costs incurred by a firm are represented by the following functions: Marginal Cost = 2x + 4 Average Total Cost = x + 4 + (36 / x) (a) Suppose the market price is equal to $12 (i) Determine the level of marginal revenue earned by the firm for each additional unit of output. (ii) Determine the level of profit-maximizing output when the market price is equal to $12. (iii) Determine the level of total revenue when the market price is equal to $12. (iv) Determine the level of economic profit when the market price is equal to $12. Hint: Total Cost = Output * Average Total Cost Suppose there are 10 identical firms operating in the market such that the market supply equation is as follows: x = 5 * P – 10 Suppose the market demand equation is as follows: x = -P + 86 (b) (i) Determine the equilibrium market price. (ii) Determine the equilibrium market quantity. (c) Determine the level of individual total product produced by each individual firm in this market. (d) Determine the level of economic profit earned by each individual firm in this market. Hint: Total Cost = Output * Average Total Cost (e) Is this market in long-run equilibrium?

Answer 1