A firm in a purely competitive industry is currently producing 1,200 units per d

Question

A firm in a purely competitive industry is currently producing 1,200 units per day at a total cost of $450. It the firm produced 1,000 units per day, its total cost would be $300, and if it produced 700 units per day, its total cost would be $275. Instructions: In parts a and c. round your answers to 2 decimal places. In part d. round your answer to 1 decimal place a. What are the firm's ATC at these three levels of production? At 1,200 units per day, ATC At 1,000 units per day. ATC At 700 units per day, ATC S b. If every firm in this industry has the same cost structure, is the industry in long-run compettive equilibrium? Click to select) c. From what you know about these fims' cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium? s d. If that price ends up being the market price and if the normal rate of profit is 10 percent, then how big will each firm's accounting proft per unit be? cents per unit

Explanation / Answer

(a) ATC = Total cost / Output (Q)

When Q = 1,200, ATC ($) = 450 / 1,200 = 0.38

When Q = 1,000, ATC ($) = 300 / 1,000 = 0.30

When Q = 700, ATC ($) = 275 / 700 = 0.39

(b) NO

[In long run equilibrium, firms produce at lowest possible ATC, whereas current ATC is $0.38 which is above the minimum ATC of $0.3]

(c) Highest possible price in long run equilibrium = Lowest possible ATC = $0.30

(d) When price = $0.30, Accounting profit = $0.30 x 10% = $0.03

= 3.0 cents

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