Use the following to answer question:
-(Table: Variable Costs for Lots)Use Table: Variable Costs for Lots.During the winter,Alexa runs a snow-clearing service in a perfectly competitive industry,which is made up of 50 identical firms.Assume that costs are constant in each interval;so,for example,the marginal cost of clearing each of the lots from 1 through 10 is $20.Also assume that she can only plow the quantities of the lots given in the table (and not numbers in between).Her only fixed cost is $1,000 for a snowplow.Her variable costs include fuel,her time,and hot coffee.Which point falls on the industry short-run supply curve?

Question

Use the following to answer question: 
-(Table: Variable Costs for Lots)Use Table: Variable Costs for Lots.During the winter,Alexa runs a snow-clearing service in a perfectly competitive industry,which is made up of 50 identical firms.Assume that costs are constant in each interval;so,for example,the marginal cost of clearing each of the lots from 1 through 10 is $20.Also assume that she can only plow the quantities of the lots given in the table (and not numbers in between).Her only fixed cost is $1,000 for a snowplow.Her variable costs include fuel,her time,and hot coffee.Which point falls on the industry short-run supply curve?

Quizplus · Accepted Answer

The industry short-run supply curve is determined by the firms' marginal costs. From the table, we can see that the marginal cost of clearing the lots from 11 to 20 is $25. Therefore, at a price of $25, Alexa would be willing to clear 2,000 lots (lots 11-20) since her marginal cost equals the price. Any lower price would cause her to exit the industry in the short-run. Any higher price would allow her to clear more lots (lots 11-30 have a lower marginal cost of $20), but since there are 50 identical firms, the market supply would quickly increase and drive the price back down to $25. Thus, point C (P=$25, Q=2,000) falls on the industry short-run supply curve.

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