Question

6. (12 pts) Gasoline is sold through local gas stations under perfectly competitive conditions. All gas station owners face the same long-run total cost function given by: | LRTC = 0,01g - 29+1014 Where is the number of gallons sold per day. (a) Assuming the market is in long-run equilibrium, how much gas will each firm sell per day? What is the value of long-run average cost at this output level? What is the long run equilibrium price? (b) The market demand for gasoline is given by: Qp = 2,500,000 - 500,000P Where Op is the number of gallons demanded per day and P is the price per gallon. Given your answer to part (a), how much gasoline will be demanded and how many gas stations will there be?

number 6

Answer 1

Anya) Market is in long oun equilibrium, so, price will be at minimum of APC curve. LRTC= 0.0193–2q² + 1019 -SO, ATC = LRTC = 0.019² - 2q + 101 E = 0.02q - 220 dq - 9- 2002 = 100 value of long run aug. pd cost = 0.01(10012- 2(100)+10 = 100-200+ 101 = 1 I and long run equilibrium price - $1. (P= min ATC) ' 90 = 2,500,000 - 500,000 P and at p=1 QD = 3,500,000 - 500,000 = 3000,000 I no. of gas stations = 9o = 2,000,000 100 220000