Question

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 the long run supply and the market demand on a graph and market/label the equilibrium.

D._ what is the output of each firm (q*) what is the number of firms? the profit for each firm?

Answer 1

A) in long run, supply curve is rising segment of MC above minimum of AC .

So Long run supply curve: P= .1

thus it is horizontal at P = .1

B) at equilibrium, P * = .1 & Q* = 400-100*.1

Q* = 400-10 = 390

c) graph

D) each firm is producing at point where AC is minimum, so

q* = 210

Number of firm = Q*/ q* = 390/210 = 1.857

So number of firms , n* = 2 ( approximately)

Profit of each firm is zero bcoz P = AC

& In long run, each firm earns only normal profit