and ATC0.5Q+20/Q. The firm\'s total cost is TC 0.5Q+20. Complete parts a A typic

Question

and ATC0.5Q+20/Q. The firm's total cost is TC 0.5Q+20. Complete parts a A typical perfectly competitive firm faces market demad and supply given by ad 1400-10P and Q30P. The firm has MC- through g below. a) How much will the firm produce to maximize profit? unit(s) b) What is the profit or loss for the firm in the short run? There will be a of Round to the nearest cent as needed.) c) How many firms are there in the industry? The long-run equilibrium price in the market will be Sand each firm will produce units) Round to two decimal places as needed.) e) In the SR, what is the price elasticity of the firm's demand? Select the correct choice below and, if necessary, fill in the answer box to complete your choice. OA. The price elasticity of the firm's demand is IS (Type an integer or a decimal. Round to two decimal places as needed.) B. The price elasticity of the firm's demand approaches infinity. f What is the value of the firm's short-run TVC? TVC$ Round to the nearest cent as needed.) TFC= (Round to the nearest cent as needed.) g) Assume that this is a constant cost industry. What is the equation of the long-run market supply curve? Select the correct choice below and fill in the answer box to complete your choice O A Long-run supply will be horizontal at P s OB. Long-run supply will be vertical at Q O C. Long-run supply will be neither horizontal nor vertical and is P Round to the nearest cent as needed.) (Round to two decimal places as needed.) (Type an expression using Q as the variable. Round to two decimal places as needed.)

Explanation / Answer

Demand is given by Qd = 1400 - 10P, supply is given by Qs = 30P. Market price in the short run is given by

1400 - 10P = 30P

1400/40 = P

P* = $35

MC is = Q.

a) Hence the firm produces P = 35 = MC = Q or 35 units in the short run.

b) ATC = 0.5*35 + 20/35 = 18.07. Hence the firm earns a profit of (35 - 18.07)*35 = 592.50

c) The demand is 1400 - 10*35 = 1050 and each firm produces 35 units so that there are 1050/35 = 30 firms in the short run

d) In the long run MC = AC. Q = 0.5Q + 20/Q This gives Q = 6.32 units and long run price is 6.32.

e) Price elasticity of demand is infinity

f) TVC = 0.5Q^2 = 0.5*40 = $20, TFC is fixed at $20

g) Constant cost industry has horizontal supply curve which is P = $6.32

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