Suppose the market demand for milk is Q^d = 150

Question

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.How many total active firms are in the market in the long run due to the increased demand?

Quizplus · Accepted Answer

In the long run, firms will enter or exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. The market demand for milk is Q^d = 150 - 5P. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium price is P = 20. The equilibrium quantity is Q = 20. The total revenue is TR = P * Q = 20 * 20 = 400. The total variable cost is TVC = 2Q² = 2 * 20² = 800. The total fixed cost is TFC = 50. So, the total cost is TC = TVC + TFC = 800 + 50 = 850. The profit is π = TR - TC = 400 - 850 = -450. Since the profit is negative, firms will exit the market until the price is equal to the minimum average total cost. The minimum average total cost is equal to the marginal cost, which is 4Q. So, the equilibrium

Suppose the Market Demand for Milk Is Qd = 150