Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive 25 20 15 10 k 5 0 Entire Market 200 250 300 350 400 450 Quantity (Number of Units) In the long run, there will be firms in this market

Economics May 21, 2021

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive
25 20 15 10 k 5 0
Entire Market

200 250 300 350 400 450
Quantity (Number of Units) In the long run, there will be firms in this market. 50
25 20 15 10 5 0
Single Representative Firm
MC

10 15 20 25 30 35 40 45 50
Quantity (Number of Units)
25 15 10

Expert Solution

In perfect competition, the firms will make only normal profits in the long run and produce at the minimum average total cost. For a single firm, this happens at price of $10 where 30 units are produced. In the entire market graph, at price of $10, 300 units are produced. The quantity per firm is 30 units and the industry output is 300 units. So,

Number of Firms = Total Units Produced / Unit Produced by Each Firm

= 300 units / 30 units

= 10

The number of firms in the market is 10.

So, the correct option is 4th "10".

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote