-Suppose that for each firm in the competitive market for potatoes,long-run average cost is minimized at 20¢ per pound when 500 pounds are grown.The demand for potatoes is Q = 10,000/p.If the long-run supply curve is horizontal,then how many firms will this industry sustain in the long run?

Question

Quizplus · Accepted Answer

In a competitive market, each firm will produce at the minimum efficient scale, where long-run average cost is minimized. In this case, the minimum efficient scale is 500 pounds at a cost of 20¢ per pound.

The industry demand function is Q = 10,000/p, which means that at a price of 20¢ per pound, the industry will demand 50,000 pounds of potatoes.

Since the long-run supply curve is horizontal, each firm can produce as much as it wants at the market price of 20¢ per pound without affecting the market price.

Therefore, the total quantity supplied by all the firms in the long run will be:

Quantity supplied by all firms = Quantity supplied by one firm x Number of firms

50,000 = 500 x Number of firms

Number of firms = 100

So, the industry can sustain 100 firms in the long run.

-Suppose That for Each Firm in the Competitive Market for Potatoes,long-Run