Consider a competitive industry with several firms all of which have the same cost function, c(y)= y² + 4 for y 0 and c(0)= 0.The demand curve for this industry is D(p)= 50 2 p, where p is the price.The long-run equilibrium number of firms in this industry is

Question

Consider a competitive industry with several firms all of which have the same cost function, c(y)= y² + 4 for y > 0 and c(0)= 0.The demand curve for this industry is D(p)= 50 2 p, where p is the price.The long-run equilibrium number of firms in this industry is

Quizplus · Accepted Answer

In a long-run equilibrium, the firms will produce where P = MC = AC. Using the cost function given, we derive the marginal cost function as MC(y) = 4. Therefore, P = 4. In the long-run equilibrium, each firm will produce where P = AC = minimum ATC. Using the cost function given, we derive the average cost function as AC(y) = (4y+1)/y. Setting P=4 equal to AC, we get y=23. Therefore, the long-run equilibrium number of firms in this industry is 23.

Consider a Competitive Industry with Several Firms All of Which