Question: Suppose all firms in a competitive industry only have fixed costs (cruise ships are somewhat like this). Each firm produces exactly 100 units a year,

Suppose all firms in a competitive industry only have fixed costs

(cruise ships are somewhat like this). Each firm produces exactly 100 units a year, and the fixed cost in per year terms is $100,000. What is the long-run price of output? What determines price in the short run?

How sensitive will the price be to fluctuations in demand? Answer the same questions for a competitive industry where all firms have only variable cost. Each firm has a variable cost of $1,000 a unit.

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