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Suppose the printing industry is perfectly competitive and George owns one of the firms in the industry
Suppose the printing industry is perfectly competitive and George owns one of the firms in the industry. The firm's production requires one fixed input--a printing machine--and two variable inputs--paper and ink. Suppose George purchased the printing machine for $100. Also suppose that the average variable cost (VAC) or producing q units of output is equal to q + $20 per unit of output. You also know that the market demand for printing products is given by P = 50 - 2Q and there are a total of 4 identical firms in the market in the short run.
You know that the firm's marginal cost function (MC) is equal to 2q + 20.
What is the total quantity of printing products purchased in the market in the short run?
a) The total quantity purchased is Q = 7.5 units.
b) The total quantity purchased is Q = 3 units.
c) The total quantity purchased is Q = 22 units.
d) The total quantity purchased is Q = 12 units.
Expert Solution
What is the total quantity of printing products purchased in the market in the short run? (d) The total quantity purchased is Q = 12 units. As noted above, in a competitive market, output is determined by the market equilibrium. The supply curve is also equal to the marginal cost of production. While this is not given by the market, it can be derived from the marginal cost functions of each firm since the quantity supplied in the market (Q) is equal to the quantity of each firm (q) times the number of firms (4). Therefore:
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