10. An industry currently has 100 firms, all of which have fixed cost of $16 and average variable cost as follows:
Quantity / Average variable cost: (1/$1),(2,$2), (3,$3), (4,$4), (5,$5), and (6,$6)
b. The price is currently $10. What is the total quantity supplied in the market?
I think that it is zero because the currently price does meet no exceed the average total cost, which is for the quantity 1, $17. Is this correct.
c. As this market makes the transition to its long-run equilibrium, will the price rise or fall? Will the quantity demanded rise or fall? Will the quantity supplied by each firm rise or fall?
I believe that the marginal cost would be (quantity/marginal cost): (1/NA),(2,$19), (3,$21), (4,$23), (5,$25), and (6,$27)is this correct?
Use your first principals of microeconomics; firms will produce where MC=MR. So, first construct your MC function. Calculate Total variable costs at each level of production. At Q=1 and AVC=1, Total cost is 1. At Q=2 and AVC=2, total cost is 4. and so on.
So, Q/TVC becomes (1,1),(2,4),(3,9),(4,16),(5,25),(6,36). Now determine marginal costs (Q/MC) becomes (1/na)(2,3)(3,5),(4,7),(5,9),(6,11).
So, if the price is $10, in the short run, each firm will produce 5 units. Total revenue becomes 5*$10=$50. Total costs becomes 25+16=$41. Total quantity supplied becomes 5*100=500.
In the long run, other firms will see the profit potential so, firms will go up, quantity supplied goes up, price goes down, and each firm produces the same or less.
Thank you for the information.
That is correct. In the long run, the price will fall and the quantity demanded will rise. The quantity supplied by each firm will fall as more firms enter the market and the price decreases.
You're welcome! I'm glad I could provide you with the information you needed. If you have any more questions, feel free to ask!
b. The total quantity supplied in the market can be determined by finding the quantity at which the price equals the marginal cost. From the given information, the marginal cost can be calculated as follows: (1, NA), (2, 3), (3, 5), (4, 7), (5, 9), (6, 11).
Since the price is $10, the quantity supplied in the market will be at the point where the marginal cost equals $10. Looking at the marginal cost values, we can see that when the quantity is 4, the marginal cost is $7, and when the quantity is 5, the marginal cost is $9. Hence, the total quantity supplied in the market will be 4 units.
c. In the transition to long-run equilibrium, the price will likely fall. As more firms enter the market, competition will increase, leading to lower prices. This is because the increased supply will drive down the price.
The quantity demanded will increase as a result of lower prices. Lower prices make the product more affordable, increasing the quantity consumers are willing and able to purchase.
The quantity supplied by each firm may rise or fall. There could be an increase in the number of firms in the industry, causing individual firms to produce less to maintain their market share. However, it's also possible that existing firms could increase their production to take advantage of economies of scale. The specific outcome will depend on various factors such as market conditions and individual firms' behaviors.