Output behavior of perfectly competitive firm
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The market demand schedule for noodles is as follows:
Price
($ per case) Q Demanded
(case per week)
5.40 50,200
6.40 45,200
7.40 40,000
8.40 35,000
9.40 30,000
10.40 24,800
11.40 19,800
12.40 14,800
The market is perfectly competitive with constant input prices, and each firm has the same cost structure, described by the following table:
Output Marginal Cost AVC ATC
(cases per week) ($ per case) ($ per case) ($ PER CASE)
150 6.00 8.80 16.50
200 6.40 7.80 13.60
250 7.00 7.00 11.64
300 7.65 7.10 10.97
350 8.40 7.20 10.52
400 10.40 7.50 10.40
450 12.40 8.00 10.58
500 12.70 9.00 11.32
Initially, there are 100 firms in the industry. In answering the following questions, explain your answers.
a. What is the market price and output in the short run?
b. What is the economic profit of each firm in the short run?
c. What is the shutdown point for firms in the short run?
d.What is the long-run equilibrium price and the number of firms?
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Solution Summary
Solution explains the methodology to find out the output of industry/firm in short and long run in case of perfectly competitive environment.
Solution Preview
Please refer attached file for better clarity of table.
Solution:
Output,q Marginal Cost AVC ATC Industry Output
(cases per week) ($ per case) ($ per case) ($ PER CASE) Cases per week, Qs=100*q
150 6.00 8.80 16.50 15000
200 6.40 7.80 13.60 20000
250 7.00 7.00 11.64 25000
300 ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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