Question

2. The athletic shoe manufacturing industry currently has 100 companies making exactly the same shoes. All the companies together have fixed costs of $4,000 and average variable costs as follows: Quantity Total Cost Average Variable Cost $15 Variable Cost Marginal Cost Average Total Cost $20 $30 $40 $50 $60 a. If the price for a pair of shoes is currently $90, what is the total quantity supplied in the market? Explain how you determined your answer. b. Is this a competitive or monopoly market for athletic shoes? Explain your answer. C. Over time, what will happen to this industry if more companies enter the market? Exit the market? Explain your answer.

Answer 1

Question 2

The fixed cost is $4,000.

Total cost is the sum total of fixed cost and variable cost.

Following is the complete table -

Q	AVC	VC (AVC * Q)	TC (FC + VC)	MC (Change in TC/Change in Q)	ATC (TC/Q)
1	15	15	55	55	55
2	20	40	80	25	40
3	30	90	130	50	43.3
4	40	160	200	70	50
5	50	250	290	90	58
6	60	360	400	110	66.67

(a)

The price of pair of shoes is $90. The price is given.

So, each firm will produce that level of output corresponding to which price equals MC.

The price equal marginal cost corresponds to 5 pairs of shoes.

So, each firm will produce 5 pairs of shoes. There are 100 firms.

Thus,

The total quantity supplied is (100 * 5) 500 pairs of shoes.

(b)

The price is given in this market and firms are acting as price taker.

It is only in a competitive market that price is given and firms acts as price taker.

So,

This is a competitive market for athletic shoes.

(c)

Each firm is producing and selling 5 pairs of shoes.

Price per pair of shoes = $90

Total revenue = 5 * $90 = $450

The total revenue is $450.

The total cost of producing 5 pairs of shoes is $290.

Calculate the economic profit -

Economic profit = Total Revenue - Total Cost = $450 - $290 = $160

The economic profit is $160.

The firms are earning positive economic profit.

So,

Overtime, there will be entry of more firms into this industry.