Answer to Question #56027 in Economics of Enterprise for Yousef

Question #56027
The market demand for woozles is given by: Qd = 2,400 – 20p There is only one available technology, and it is employed by all producers— actual and potential. It implies the following average cost function: AC = 625q–1 + 0.25q Currently, 20 firms serve the market. The individual supply curve is the part of marginal cost (MC) curve after the intercection with average variable cost (AVC) curve. MC is the derivative of TC curve. MC = TC = (AC*q)= (625 + 0.25q^2)= 0.5q, so Ps = 0.5q or qs = 2p. The industry supply curve is the sum of 20 individual firm's supply curves, so Qs = 20*2p= 40q The short‐run competitive equilibrium price and output is in the point, where Qs = Qd, so: 40p = 2,400 - 20p, 60p=2400 > pe=$40 Qe=40*40=1600 units Individual competitive output is q = 1,600/20 = 80 units. TP=(P – AC)*q = (40 - (625/80 + 0.25*80))*80 = (40 - 27.8125)*80 = $975 E- Determine the long‐run competitive market price and quantity and how many firms will operate.
Expert's answer
In the long‐run competitive market price decrease, so all the firms will receive normal (zero) profit, and quantity produced will also decrease, as some firms will exit the market, so less firms will operate in the market.

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