Question

21. The widget industry is a constant-cost industry, so that all firms are identical. The following chart shows the industry-wide demand curve and the marginal cost curve of a typical firm: Industry-Wide Demand Price ($) Quantity Firm's Marginal Cost Curve Quantity Marginal Cost ($) 500 oooooow 400 300 200 100 + LOCO cocoon The industry is in long-run equilibrium and there are 100 fims. a. What are the fixed costs at each firm? b. What is the price of a widget? c. On the short-run supply curve, what quantity corresponds to a price of $9?

Answer 1

There is no fixed cost for any firm because the industry is in the long run and in the long run the distinction between the fixed input and variable input disappears. this implies that there is only a variable cost of production in the long run.

When the market price is $5, the quantity demanded is 300 units and the marginal cost is also $5 at three units of output.. there are 100 firms which means market quantity supplied is 300 units at this price. this is the market price because market quantity demanded and market quantity supplied both are 300 units.

When the price is $9, marginal cost is also $9 at 6 units of output . now every Firm is producing 6 units and there are 100 firms which means market quantity supplied is 600 units.