Suppose the candle manufacturing industry is organized as a perfectly competitive market i.e. it consists of many firms with identical cost structures. A single firm's long-run average total cost function is “U” shaped and minimized at an output of q = 8 units.

At q = 8 units of output, the long-run average total cost is $100. (These are heavenly candles!!!)

The candle industry is a "constant cost" perfectly competitive industry. That is to say, there are no EXTERNAL economies or diseconomies present in the market.

The market demand for candles is given by: QD = 2,600 – 2P.

Determine the following:

a. long-run equilibrium output of each firm, q*

b. long-run equilibrium price of candles, P*

c. long-run equilibrium total industry output, Q*

d. long-run equilibrium number of firms in the market, N*

e. long-run equilibrium profit of each individual firm, profit*

f. long-run equilibrium value of consumers' surplus, CS*.

g. Ross Geller asks you the following, "If the candle manufacturing industry is a constant cost perfectly competitive industry, then how can it be the case that the long-run average total cost function is "U" shaped? I thought it would be horizontal?" Please set Ross straight with a precise explanation.