The long-run supply curve for a product is horizontal with ATC = 200.Market demand is defined as P = 1,000 - 4Q.The market is competitive and is in long-run equilibrium with 50 firms in the industry.If demand increases to P = 1,240 - 4Q,how many firms will be in the industry at the new long-run equilibrium?

Question

Quizplus · Accepted Answer

In long-run equilibrium, price equals average total cost (ATC). Initially, P = 200, so Q = 200. With 50 firms, each firm produces 4 units (200/50). When demand increases to P = 1,240 - 4Q, the new equilibrium price is still 200. Solving 1,240 - 4Q = 200 gives Q = 260. With each firm producing 4 units, 65 firms are needed (260/4).

The Long-Run Supply Curve for a Product Is Horizontal with ATC