Question

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thr an for seras is constant marginal cost of $9 and no fixed costs but can only produce 10 units (or fewer). What are the price and the quantity consumed in long-run competitive equilibrium? Are these the same as in (a)? Explain. Yes c. Are positive economic profits inconsistent with a long-run competitive equilibrium? d. Identify the marginal cost of the last unit sold in (b). Is it $10 or $9? That is, if demand fell by 1 unit, would the new entrant or the other firms reduce output? e. How much profit do the less efficient firms in (b) earn? f. In the long-run competitive equilibrium, must the profit of the marginal entrant (the next firm to enter the market if demand expands or, alter- natively, the next firm to leave the market if de- mand contracts) be zero? when th Consu 302 fe per ye Yes he mankets 3. Suppose a competitive market consists of identical firms with a constant long-run marginal cost of $10. (There are no fixed costs in the long run.) Suppose the demand curve at any price, p, is given by Q= 1,000- p. a. What are the price and quantity consumed in the long-run competitive equilibrium? P 10 9:440 b. Suppose one new firm enters that is different from the existing firms. The new firm has a CandBredue orer

Answer 1

a. Add Rs.10, supply is perfectly elastic.
At this price any quantity can be supplied.

So, quantity demanded equal to (Q) 1000 - 10 = 990.

b. New firms cannot produce over 10 units. So if it is the situation below 10 units it can be affected but if it is over 10 units it will not be affected.

So supply and demand intersect at same Price and Quantity.

c. Yes. Only the marginal entrants will earn no profit.

Long-term profits are equal to 0, according to economic theory, because as long as profits remain, new companies can enter the market, increase competition, and drive down prices before MC= P. In the long run, if businesses experience losses, they will leave the market. It decreases demand and increases the price to MC= P.

d. It’s $10.
Because of that supply and demand curve intersect at the same price and quantity.