Purchase Solution

Calculating a competitive industry's long-run equilibrium

Not what you're looking for?

Ask Custom Question

A firm in a purely competitive industry is currently producing 1200 units per day at a total cost of $600 . If the firm purchased 1000 units per day, its total cost would be $400, and if it produced 700 units per day, its total cost would be $375. What is the firms ATC per unit at these three levels of production? If every firm in this industry has the same cost structure, is the 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%, then how big will each firm's accounting profit per unit be?

Purchase this Solution

Solution Summary

Given data on a typical firm's cost function, this solution shows how to calculate the market price for the industry in long-run equilibrium.

Solution Preview

Average Total Cost (ATC) = Total Cost (TC)/Quantity of output (Q)

When Q = 1200, ATC = (600/1200=) $0.50
When Q = 1000, ATC = (400/1000=) $0.40
When Q = 700, ATC = (375/700=) $0.54

In a perfectly competitive ...

Purchase this Solution

Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.