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Assume a competitive market consists of identical firms with a constant long run marginal cost of $10. (There are no fixed costs in the long run.) Assume the demand curve at any price, P, is given by Q = 1000 ? P.

1. Determine the price and quantity consumed in the long-run competitive equilibrium?

2. Assume one new firm enters that is different from the existing firms. The new firm has a constant marginal cost of $9 and no fixed costs but can only produce 10 units. Determine the price and the quantity consumed in the long-run competitive equilibrium? Are these the same as in (1)?

3. Are positive economic profits inconsistent with a long-run competitive equilibrium?

4. Find out the marginal cost of the last unit sold in (2). Is it $10 or $9? That is, if demand fell by 1 unit, would the new entrant or the other firms reduce the output?

5. Discuss how much profit do the less efficient firms in (2) earn?

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M91142400

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