A firm in a perfectly competitive constant cost industry has total and marginal costs in the...

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A firm in a perfectly competitive constant cost industry has total and marginal costs in the short run given by: Total cost: TC = 0.5q2 + 2.5q + 72, where q is output of each firm Marginal cost: MC = q + 2.5 The firm has fixed costs of $40 (which is already included in the TC equation above). This TC equation generates minimum average total cost of $14.50 at q = 12. This firm generates minimum long run average costs (also at q = 12, LRAC = $14.50). a) Determine the average variable cost. At what price will the firm shut down in the short run? b) In the short run, if the firm faces a price of $20.50, how much profit will the firm earn? c) In the short run, there are 200 identical firms in the industry. Demand for the output of firms in this industry is given by: Market demand: P = 32.5 -0.01 x Q, where Q is the total quantity. Find the equilibrium price and quantity. d) Given the demand curve described in part (c), how many firms will there be in this industry in the long run? A firm in a perfectly competitive constant cost industry has total and marginal costs in the short run given by: Total cost: TC = 0.5q2 + 2.5q + 72, where q is output of each firm Marginal cost: MC = q + 2.5 The firm has fixed costs of $40 (which is already included in the TC equation above). This TC equation generates minimum average total cost of $14.50 at q = 12. This firm generates minimum long run average costs (also at q = 12, LRAC = $14.50). a) Determine the average variable cost. At what price will the firm shut down in the short run? b) In the short run, if the firm faces a price of $20.50, how much profit will the firm earn? c) In the short run, there are 200 identical firms in the industry. Demand for the output of firms in this industry is given by: Market demand: P = 32.5 -0.01 x Q, where Q is the total quantity. Find the equilibrium price and quantity. d) Given the demand curve described in part (c), how many firms will there be in this industry in the long run?

Answer rating: 100% (QA)

a The average variable cost AVC can be calculated by subtracting the fixed cost from the total cost and dividing it by the quantity q In this case the ... View the full answer