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    Determing output and profit of a perfectly competitive firm

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    Please refer attached file for graph.

    Use the accompanying graph, which shows the marginal cost and average total cost curves for the store Zapateria, a perfectly competitive firm.

    a.How many pairs of shoes will Zapateria produce if the market price of shoes id $70 a pair?
    b.What is the total profit Zapateria produce if the market price of shoes is $70 a pair?
    c.Should Zapateria expect more shoe stores to enter this market? Why or why not?
    d.What is the long-run equilibrium price in the shoe market assuming it is a constant-cost industry?

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    Solution:

    a)How many pairs of shoes will Zapataria produce if market price of shoes is $70 a pair?
    In a perfectly competitive environment MC= P meaning thereby MC=$70 a pair
    So, Let us find quantity corresponding to MC=$70 from the given graph, we get ...

    Solution Summary

    Solution describes the methodology to find out output and profit of perfectly competitive firm for a given market price level. It also determines long run equilibrium price in the market.

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