In 2012, the box industry was perfectly competitive. The lowest point on the lon
ID: 1197650 • Letter: I
Question
In 2012, the box industry was perfectly competitive. The lowest point on the long-run average cost curve each of the identical box procedures was $4, and this minimum point occured at an output of 1,000 boxes per month. The market demand curve for boxes was:
Qd=140,000 - 10,000P
whee P was the price of a box (in dollars per box) and QD was the quantity of boxes demanded per month. The market supply curve for boxes was
QS= 80,000 + 5,000P
Where QS was the quantity of boxes supplied per month.
a) What was the equalibrium price of box? Is this the long-run equalibrium price?
b) How many firms are in this industry when it is in long-run equalibrium?
Explanation / Answer
a) For equilibrium price Qd should be equal to Qs
140,000 - 10,000P = 80,000 + 5,000P
15,000P = 60,000
It implies, P = 60,000/15 = $4
Yes, this the long-run equalibrium price. Because in the long run P = MC = ATC.
Market demand = 140,000 - 10,000P = 140,000 - 10,000 x 4 = 100,000 boxes = Market Supply
Since at the equlilibrium price of $4, one firm produces 1000 boxes, therefore to produce 100,000 boxes 10 are required.
Therefore, there are 10 firms in the industry.
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