Question

For a perfect competitor in the long run who experiences the following cost conditions, answer the...

  • For a perfect competitor in the long run who experiences the following cost conditions, answer the following questions. Assume the price is 28 (P=28).

MC = 4 + 24Q

AVC = 4 + 12Q

  • Identify the condition for profit maximization and find the profit-maximizing quantity level (Q).
  • Identify the long run (LR) profit condition and find the firm’s fixed costs (FC).
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Answer #1

In the long run the supply curve will shift right and the firm will make no economic profit as the price will get reduced and this happened due to the entry of new competitors in the market. And if the price is further lowered then the firm will have negative economic profit and it have to exit the market.

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