Suppose the following data describe the demand for liquid-diet beverages: Five i

Question

Suppose the following data describe the demand for liquid-diet beverages:

Five identical, perfectly competitive firms are producing these beverages. The cost of producing these beverages at each firm is the following:

(a) What price will prevail in this market?

$

(b) What quantity is produced?

liquid-diet beverages

(c) How much profit (loss) does each firm make?

Instructions: Enter your response as a whole number. Indicate a negative response with a (-) negative sign.

$  per firm

(d) What happens to price if two more identical firms enter the market?

Instructions: Enter your response as a whole number.

Price falls to $

Price $11 $10 $9 $8 $7 $6 $5 $4 $3 $2 Quantity demanded 7 10 13 16 19 22 25 28 31 34

Explanation / Answer

Find the marginal cost by finding the difference of total cost.

Now this rising portion of this MC will act as suppply curve of one firm. Find the market supply by multiplying Qs with 5. Plot Market demand and supply

a) What price will prevail in this market?

Market price is $5

(b) What quantity is produced?

A total of 25 liquid-diet beverages

(c) How much profit (loss) does each firm make?

PROFIT = TR - TC = 5*5 - 22 = $3

$3 per firm

(d) What happens to price if two more identical firms enter the market?

When 2 firms enter the market market supply shifts to the right and a new price is established

Price falls to $4.

Total product TC MC 0 5.00 1 8.00 3.00 2 10.00 2.00 3 13.00 3.00 4 17.00 4.00 5 22.00 5.00 6 28.00 6.00 7 36.00 8.00 8 45.00 9.00 9 55.00 10.00 10 67.00 12.00

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