A perfectly competitive industry is characterized by the cost function for individual firms: TC...
Question:
A perfectly competitive industry is characterized by the cost function for individual firms: {eq}\displaystyle TC (q) = 0.01 q^2 + 100 {/eq} and by demand function: {eq}\displaystyle D(p) = 10, 000 - 100 p {/eq}. Compute the long-run equilibrium price, quantity, and the number of firms in the market.
(Hint: Competition drives down the price to the minimum point on the average cost curve which is characterized by {eq}AC(q) = MC(q) {/eq}. Compute the long-run equilibrium quantity {eq}q* {/eq} using this equality. Once you have {eq}q* {/eq}, calculate {eq}p* {/eq} by using the competitive firm's profit maximization condition {eq}p = MC(q) {/eq}. Then get the number of firms using the demand equation.)
Perfect Competition
Perfect Competition is defined as a market structure where there are many sellers and buyers of the commodity and the service. In such a market structure, the profit earned by the producers is considered to be normal profit.
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View this answerThe long term equilibrium is calculated by the equilibrium of average cost and the marginal cost
The marginal cost is calculated from the total cost...
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