The market for apple pies in the city oEctenia is compethive and has the followi
ID: 1106218 • Letter: T
Question
The market for apple pies in the city oEctenia is compethive and has the following demand sohedale Demesd Schedule .1O0 GOD Eath protucer, the market h35-9 fivedcoot of S5nd the following mgrginal cost uani Harginal Cost (Dolara Compuu foowing ablu by dmpege cal coueand anage oca ut hqunay prod.ou. Quantity Tee cost Avernge Total Cost (oolar) (Ps(Doan) The pricecf.pn is now 2. price f S12. making s pront ofs s, so there avep pies are sold in the market Each prodacer makes preducers in the market, each True or Tose: The arket is in lang-run equibrium The market rice iss producercoerstrg. pies are sold in thi market, and pies, s0 there areExplanation / Answer
We have the following information
Quantity (Q)
Fixed Cost (FC) ($)
Variable Cost (VC) ($)
Total Cost (TC) (FC + VC) ($)
Marginal Cost (MC) ($)
Average Total Cost (ATC) (TC/Q) ($)
0
5
0
5
-
-
1
5
2
7
2
7
2
5
7
12
5
6
3
5
16
21
9
7
4
5
27
32
11
8
5
5
40
45
13
9
6
5
55
60
15
10
At a price of $12, 100 pies are sold in the market. Each producer makes 5 pies, so there are 20 producers in the market each making a profit of $15.
Profit maximizing point for each firm is where the Price is equal to the Marginal Cost (MC), in this case it is at the point of 5 units.
Total producers = Total Quantity/Each Producer Production = 100/5 = 20 producers
Profit of a Firm = Total Revenue – Total Cost
Total Revenue = Price × Quantity = $(12 × 5) = $60
Total Cost at Quantity of 5 = $45
Profit = $(60 – 45)
Profit = $15
The market is not in long-run equilibrium. This is because in the long run the equilibrium is at the point where long-run marginal cost is equal to the long-run average total cost which is equal to the price.
In the long-run each producer earns a profit of $0.
Quantity (Q)
Fixed Cost (FC) ($)
Variable Cost (VC) ($)
Total Cost (TC) (FC + VC) ($)
Marginal Cost (MC) ($)
Average Total Cost (ATC) (TC/Q) ($)
0
5
0
5
-
-
1
5
2
7
2
7
2
5
7
12
5
6
3
5
16
21
9
7
4
5
27
32
11
8
5
5
40
45
13
9
6
5
55
60
15
10
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