The snow removal business in East Icicle, Minnesota,is a competitive industry.All snowplow operators have the cost function C = Q2 + 4, where Q is the number of driveways cleared.Demand for snow removal in the town is given by Qd = 120 - P.The long-run equilibrium number of firms in this industry is
A)120.
B)29.
C)56.
D)58.
E)59.

Question

Quizplus · Accepted Answer

The correct answer is D because the long-run equilibrium number of firms in this industry is 58. This can be determined by setting the price equal to the marginal cost and solving for Q. The marginal cost is equal to 2Q, so setting this equal to the price (120 - Q) gives us 2Q = 120 - Q, which simplifies to 3Q = 120. Solving for Q gives us Q = 40. This means that each firm will clear 40 driveways in the long run. Since there are 120 driveways in total, this means that there will be 120/40 = 3 firms in the long run.

The Snow Removal Business in East Icicle, Minnesota,is a Competitive