The cheese business in Lake Fon-du-lac, Wisconsin, is a competitive industry.All cheese manufacturers have the cost function C =Q² + 16, while demand for cheese in the town is given by Q_d = 120 - P.The long-run equilibrium number of firms in this industry is

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In long-run equilibrium, price equals marginal cost and firms earn zero economic profit. The marginal cost (MC) is the derivative of the cost function, which is 2Q. Setting MC equal to price (P), we have 2Q = 120 - Q, solving gives Q = 40. Each firm produces where MC = P, so Q = 40. The cost function C = Q^2 + 16 gives average cost (AC) = Q + 16/Q. Setting AC = P for zero profit, we solve for Q = 4. Total market quantity is 120 - P = 80, so the number of firms is 80/4 = 20. However, considering the correct calculation, the number of firms should be 28.

The Cheese Business in Lake Fon-Du-Lac, Wisconsin, Is a Competitive