24-31. A (typical) firm in a perfectly competitive constant cost industry has to

Question

24-31. A (typical) firm in a perfectly competitive constant cost industry has total costs in the short ün given TC =1200 + 36q + 3q, FC = 525 q > 2 where q is output per day and TC is the total cost per day in dollars. The firm has fixed costs of $525 (already included in the TC equation above). The TC equation generates minimum average costs of $156 (per unit) at q-20. You are also told that this size firm generates minimum long run average costs (that is, minimum LRAC occurs at q = 20, with min LRAC = $156) Suppose that the demand curve facing the industry is given by the equation P356 .025Q where P is the price per unit and Q is the number of units demanded per day. Presently there is no international trade in this product. Questions 24 through 31 concern this firm and this industry 24. Suppose this industry is in long run equilibrium, the number of firms in the industry, rounding to the nearest integer, is A) 141 G) 320 D) 640 J) none of the above F) 520 B) 560 H) 400 C) 600 I) 440 E) 480 Now suppose the international trade in this product opens up. As a result a foreign supply of this product becomes available such that any amount can be imported at the world price of $126 per unit. 25. As a result of international trade, in the short-run, the quantity of this product imported (per day is equal to 860 F) 3200 A) 9200 B) 8200 C) 6160 D 6000 E) 5 G) 2880 H) 2600 I) 0 J) none of the above 26. As a result of international trade, in the long-run, the quantity of the product imported (per day) is equal to A) 9200 B) 8200 C) 6160 D 6000 E) 5 G) 2880 H) 1920 I0 860 F) 3200 J) none of the above 27. As a result of international trade, in the long-run, compared to the initial long-run equilibrium the consumer surplus (per day) A) Rises by $55,100 C) Rises by S164,900 E) Rises by S258,000 G) Rises by $1,788,000 H) Falls by $1,788,000 I) Rises by $110,200 B) Falls by $55,100 D) Falls by $164,900 F) Falls by $258,000 J) none of the above

Explanation / Answer

Question 24

In long-run, a perfectly competitive firm is in equilibrium when price equals minimum long-run average cost.

Equating price and minimum long-run average cost,

P = minimum LRAC

356 - 0.025Q = 156

0.025Q = 200

Q = 8,000

So, total industry output is 8,000 units.

A typical firm produces 20 units at minLRAC.

This implies long-run equilibrium output for a typical firm is 20 units.

So,

Number of firms = Total industry output/Output of a typical firm

Number of firms = 8,000/20 = 400 firms

The correct answer is the option (H).

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