A perfectly competitive painted necktie industry has a large number of potential entrants. Each firm has an identical cost structure such that long-run average cost is minimized at an output of 20 units. The minimum average cost is $10 per unit. Total market demand is given by Q=1500-50P.
a. What is the industry's long-run supply schedule?
economics - economyst, Friday, January 30, 2009 at 5:49pm
From the information, you have given, Price will be $10. If demand increase an prices rises above $10 in the short run, more firms will enter and drive the price back down to $10. If demand falls and and price falls below $10, all firms will begin to lose money in the short run, some firms will drop out lowering Q and therefore raising the price back up to $10.
Long-run supply is therefore perfectly elastic at $10.
economics - erere, Sunday, November 28, 2010 at 11:45pm