Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If S3 is the market supply curve, then each firm in this market will earn an economic loss of ________ per week.
A)$1,000
B)$1,500
C)$2,000
D)$3,000

Question

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.  If S3 is the market supply curve, then each firm in this market will earn an economic loss of ________ per week.
A)$1,000 
B)$1,500 
C)$2,000 
D)$3,000

Quizplus · Accepted Answer

If the market supply curve is S3, then the short-run equilibrium price will be $10 per gallon and each firm will produce 200 gallons we week. Each firm's total revenue will be $2,000 (= $10 × 200)per week, and each firm's total cost will be $4,000 (= $20 × 2000)per week. Thus, each week each firm will earn an economic loss equal to −$2,000 = $2,000 − $4,000.

Assume That All Firms in This Industry Have Identical Cost