Question

The market for paper is perfectly competitive and 1,000 firms produce paper. The table sets out the market demand schedule for paper.

Price (dollars per box)	Quantity demanded (thousands of boxes per week)
2.95	500
4.13	450
5.30	400
6.48	350
7.65	300
8.83	250
10.00	200
11.18	150

The table in the next column sets out the costs of each producer of paper.

Output (boxes per week)	Marginal cost (dollars per additional box)	Average variable cost	Average total cost
		(dollars per box)
200	6.40	7.80	12.80
250	7.00	7.00	11.00
300	7.65	7.10	10.43
350	8.40	7.20	10.06
400	10.00	7.50	10.00
450	12.40	8.00	10.22
500	20.70	9.00	11.00

a) What is the market price and the firm’s economic profit or loss in the short run?

b)  In the long run, what is the market price and the quantity of paper produced? What is the number of firms in the market?

Answer 1

( In perfectly compelline market in that a perfectly Compettive from supply cave is rising portion of Me above Ave. In table 2, we can see that MC - AUC 7 end after that Me is abure Ave. Hence individual from Supply schedule is given belone [ P = Mc Waughty Supply 7:45 18 8.40 8.350 400 12.40 450 2.10 I 5o. There are two dendeal tims, so the market Schedule will be the following Supply Posce 7.65 8.4. caty Supphed (thur sund of buxer per week) 30 350 que 12.4. 20.70 450 Swo We can der' that in market domond schedule at Price of $7.65 gountry demand is 3w thousand of boxes and in market supply schedule at price of 17.45 grenhty supply is 3 to thousand of It implic egulibrum price is $7.65.

At egalibrum punt of profectly compehire from, P = mc P = $7.65 Determed by market domond and thanks Sapply) P- MC = 17.65 ceresponding to 30 wib of output Hence on individual from will produce 3w witte of wuthed in Shast aan, corresponding ATC is roub. 1 u. 43. Proft - TR - Tc T : PG - ATC-ce 1 = ($1.65 (30) - 110.43) (3W) a = - $834 from economic loss in shost don is $834 (6 In lung sin, a perfectly compentue fim produces at P = MC - ATC tene, P= Mc = ATC = 10 corresponding to 40 nits of Markert porco is 4 $10. quanday domunded in market at ?=$10 is 20 thousand boxe Individual frim is supplying 400 boxes in lung run at P = 10 No. of from Market Demand - Produchon of each from No. of from = 20 thousand 200 40 No. of from 2500 I There are so firms in the long run. 2000W 40