Chap 7 Question 2 In 2012, the box industry was perfectly competitive. The lowes

Question

Chap 7 Question 2

In 2012, the box industry was perfectly competitive. The lowest point on the long-run average cost curve of each of the identical box producers was $4, and this minimum point occurred at an output of 1,000 boxes per month. The market demand curve for boxes was: QD =140,000 - 10, 000P where P was the price of a box (in dollars per box) and QD was quantity of the boxes demanded per month. The market supply curve for boxes was QS = 80,000 + 5,000 P where QS was the quantity of boxes supplied per month.

a. What was the equilibrium price of a box? Is this the long-run equilibrium price?

b. How many firms are in the industry when it is in the long-run equilibrium?

Explanation / Answer

At equillibrium, 140000-10000P=80000+5000P or, 15000P=140000-80000 or 15000P=60000 or P=60000/15000=4 Q=140000-10000P=140000-10000*4 or Q=140000-40000=100000 Minimum output per month=1000 So no of firm=100000/1000=100 a>Equillibrium Price=4 b>Number of firms=100

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