Determining long run equilibrium output
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A perfectly competitive constant cost industry contains a number of firms, each of which has the following long-run total cost function, where q is annual output:
TC = 0.01q3 - 1.2q2 + 111q
The market demand curve for the product is:
Q = 5,800 - 20p
where Q is annual industry sales.
(a) Calculate the long-run equilibrium output of the industry.
(b) How many firms are there in the industry in long run?
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Solution Summary
The solution describes the steps for finding long run equilibrium output for perfectly competitive environment. It also determines number of firms working in long run.
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Please refer attached file for better clarity of algebraic expressions.
Solution:
TC = 0.01q3 - 1.2q2 + 111q
Average Total Cost = TC/Q=0.01 q2 -1.2q+111
d(ATC)/dq=0.02q-1.2
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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