Consider the following information about a firm’s long-run total costs (assuming that other firms could produce at the same cost values):

qA	TC
0	0
100	2200
200	3600
300	5400
400	7600
500	10000

1. For each value of q_A (except when q_A = 0), provide the numerical value of the firm’s average total cost AC. Then, compare these AC values with the firm’s AVC (average variable cost) values at each value of q_A. For any given level of q_A, how are AC and AVC related? Why?
2. Suppose that the market price is P = 20. What is the firm’s profit-maximizing level of output q_A*? [P is the per-unit price at which A can sell its output.]
3. Will the firm operate or shut down if P = 20? Why?
4. Suppose that when P = 20 there are initially 1000 firms producing output. Compared to 1000, how many firms (i.e., 1000, more than 1000, less than 1000) will there be at long-run equilibrium? In answering this, provide the definition of long-run equilibrium.
5. What is the specific value, here, of the long-run equilibrium price?
6. Briefly explain (as precisely as possible) what the long-run market supply curve looks like, and why. What happens to the market price in the long-run if market demand rises?

Answer rating: 100% (QA)

To find the average total cost AC for each level of qA we divide the total cost TC by the quantity of output qA qA TC AC 0 0 100 2200 22 200 3600 18 3... View the full answer