Suppose that the Incom Starfighter Facility is but one of many producing Starfig

Question

Suppose that the Incom Starfighter Facility is but one of many producing Starfighters for the different factions found in the Star Wars Universe (thus, making the Starfighter market perfectly competitive). The market demand and supply curves are given by 4. pDemand 500-Q psupply = 50 + Q If the total and marginal cost functions for the Incom facility are given by: MC = 50 + 25Q 500 + 12.50° + 1012.5 TC This means that the Incom company will produce each at a price of 225 profits. Starfighters, long-run Vearning

Explanation / Answer

The price determined by the industry will be

500-Q=50+Q

2Q = 450

Q = 225 (Industry output)

P = 50+225 = 275

In perfectly competitive market the equilibrium at P=MC

275 = 50 + 25Q

25Q = 225

Q = 225/25 = 9 units of starfighters at a price of $275

Profits = TR-TC = 9*275 - (50*9+12.5*(9)^(2)+1012.5) = 0

The firm is earning normal profits in the long run. Economic Profits are zero.

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