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A firm in a purely competitive industry is currently producing 1000 units per day at a total cost of \$450. If the firm produce 800 units per day its total cost would be \$300, and if it produced 500 units per day, its total cost would \$275. What are the firms ATC per unit at these three levels of production? If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? From what you know about these firms' cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium? If that price ends up being the market price and if the normal rate of profit is 10 percent, then how big will each firm's accounting profit per unit be?

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#### Solution Preview

** What are the firms ATC per unit at these three levels of production?

500 units per day: 275/500 = 0.55

800 units per day: 300/800 = 0.375

1,000 units per day: 450/1000 = 0.45

**If every firm in this industry has the same cost structure, is the industry in long-run competitive ...

#### Solution Summary

A firm in a purely competitive industry is currently producing 1000 units per day at a total cost of \$450. If the firm produce 800 units per day its total cost would be \$300, and if it produced 500 units per day, its total cost would \$275. What are the firms ATC per unit at these three levels of production? If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? From what you know about these firms' cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium? If that price ends up being the market price and if the normal rate of profit is 10 percent, then how big will each firm's accounting profit per unit be?

\$2.49