Suppose you are given the following information about a particular PERFECTLY COMPETITIVE INDUSTRY:
The market demand curve is Q = 6500 - 100P
The market supply curve is Q = 1200P
You are also given the following information about a single PERFECTLY COMPETITIVE FIRM that operates in this industry:
The total cost function for the firm is TC = 722 + (Q^2 /200)
The marginal cost for the firm is MC = (2Q/200)
a. Calculate the profit-maximizing level of output for the individual firm and the price they charge.
b. Would you expect to see entry into or exit from this industry in the long-run? EXPLAIN YOUR REASONING. In addition, CALCULATE the price at which entry into or exit from the industry will stop.
c. Clearly explain why firms will continue to remain in the industry even when economic profits are driven to zero in the long run.
Suppose you are given the following information about a particular PERFECTLY COMPETITIVE INDUSTRY:
The market demand curve is Q = 6500 - 100P
The market supply curve is Q = 1200P
You are also given the following information about a single PERFECTLY COMPETITIVE FIRM that operates in this industry:
The total cost function for the firm is TC = 722 + (Q^2 /200)
The marginal cost for the firm is MC = (2Q/200)
a. Calculate the profit-maximizing level of output for the individual firm and the price they charge.
b. Would you expect to see entry into or exit from this industry in the long-run? EXPLAIN YOUR REASONING. In addition, CALCULATE the price at which entry into or exit from the industry will stop.
c. Clearly explain why firms will continue to remain in the industry even when economic profits are driven to zero in the long run.
