Question

A perfectly competitive market is characterized by every firm having the following cost structure: C = 100 + q². In long-run equilibrium, how much output does a firm produce?

Question 2 options:

	q = 10
	q = 110
	q = 50
	q = 28

Answer 1

The long-run equilibrium of a perfectly competitive market generates the following equilibrium conditions

(1)P = MC

(2) MR = MC

(3)MR = AR = P

(4) P = AR = ATC

(5)MC = ATC

(6)MC = ATC = LRAC = LRMC

When MC=ATC, firms produce output at the lowest per unit cost possible.

We have C = 100 + q²

^MC=2q

^{ATC = 100/q + q}

According to the condition, MC=ATC

2q=100/q +q

2q-q=100/q

q=100/q

q²=100

q= 10

In long-run equilibrium, a firm produces output, q = 10.