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 new firms enter the market in the long run due to the increased demand?

Quizplus · Accepted Answer

In the long run, firms will enter the market until the price is driven down to the point where economic profits are zero. At this point, the price will be equal to the average total cost of production.The average total cost of production is equal to the variable cost plus the fixed cost divided by the quantity produced. In this case, the variable cost is VC = 2Q^2 and the fixed cost is FC = $50. So the average total cost is:ATC = VC + FC / QATC = 2Q^2 + $50 / QTo find the quantity at which the price is equal to the average total cost, we set Q^d = ATC and solve for Q:Q^d = ATC150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2Q^2 + $50 / Q150 - 5P = 2

Suppose the Market Demand for Milk Is Qd = 150