LE CORBUSIER « UNE PROMENADE PICTURALE - Canson Infinity

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LE CORBUSIER « UNE PROMENADE PICTURALE - Canson Infinity

2. An industry currently has 100 firms, all of which have fixed costs of $16 and average variable cost asfollows:Quantity Average Variable Cost1 $12 23 34 45 56 6a. Compute marginal cost and average total cost.b. The price is currently $10. What is the total quantity supplied in the market?c. As this market makes the transition to its long-run equilibrium, will the price rise or fall? Will thequantity demanded rise or fall? Will the quantity supplied by each firm rise or fall?d. Graph the long-run supply curve for this market.Solution: Chapter 14 problem, MC, VC, ATC, long-run supply curve…a. The firms' variable cost (VC), total cost (TC), marginal cost (MC), and average total cost(ATC) are shown in the table below:QuantityVariableCostTotalCostMarginalCostAverageTotal Cost1 1 17 1 172 4 21 3 10.53 9 26 5 8.674 16 32 7 85 25 41 9 8.26 36 52 11 8.67b. If the price is $10, each firm will produce five units, so there will be 5 × 100 = 500 units supplied in themarket.c. At a price of $10 and a quantity supplied of five, each firm is earning a positive profit because price isgreater than average total cost. Thus, entry will occur and the price will fall. As price falls, quantitydemanded will rise and the quantity supplied by each firm will fall.d. Figure 10 shows the long-run industry supply curve, which will be horizontal at minimum average totalcost.FirmIndustryMCPricePriceand ATC andCostsCostsP 1SQuantityQuantityFigure 10


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