![Multiple Choice (2 pts. each) [Questions 1-3] Consider a competitive industry with a large number of identical firms with cos](http://img.homeworklib.com/images/9043ef9d-9453-45ca-a60b-62b808bac6ad.png?x-oss-process=image/resize,w_560)
Homework Answers
Question 1.
Supply curve is the MC curve and MC is the first order derivative of the cost function
MC = p = dC/dy = 2y or y = p/2 where p is the price and y refers to quantity supplied. The MC curve represents supply curve but only above minimum of AVC.
Question
2.
In the long run the price must equal minimum of ATC so that the
firms earn zero economic profits.
P = ATC
ATC = C/y = y^2/y + 4/y = y + 4/y
to minimize ATC we take first order derivative of ATC function and equate it to Zero.
1-4/y^2 = 0 so 1 = 4/y^2
y^2 = 4 or y = +-2 negative output is ignored so y=2
at y=2, the ATC = 2+4/2 = 4
Question 3.
D = 80 - P, long run price is P = 4 from Question 2
so D or Y = 80-4 = 76 (Demand in the market is for 76 units)
single firms supply/output is y= 2 units, so
number of firms = Y/y = 76/2 = 38 firms
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