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A perfectly competitive constant-cost industry has a large number of potential entrants. Assume that each firm...

A perfectly competitive constant-cost industry has a large number of potential entrants. Assume that each firm minimizes its LRAC at an output of 20 units and at an average cost of $10/unit and has an upward sloping MC curve. Market demand is given by QD = 1500 – 50P.

a. Draw a LR graph representing each firm, including the LR equilibrium price, quantity, and profit.

b. Draw a graph of the LR demand and supply for the market, including the LR equilibrium price and quantity for the market.

c. Briefly describe and explain the shape of the LR market supply curve.

d. What is the consumer surplus (numerical value) at the competitive equilibrium? Identify the CS in your graph from part (b).

e. What is the producer surplus (numerical value) at the competitive equilibrium? Identify the PS in your graph from part (b).

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