The global propylene industry is perfectly competitive and each producer has the

Question

The global propylene industry is perfectly competitive and each producer has the marginal cost function MC=40-12q+q2. The corresponding average cost function is AC=40-6q+ 1/3q2 . The market demand curve for propylene is Q=2200-100P

1. What is the long-run equilibrium price in this industry?

2. At this price, how much would an individual firm produce? Explain

3. How many active producers are in the propylene market in a long-run competitve equilibrium? Explain

4. How much profit an individual producer is making? Explain

Explanation / Answer

The equilibrium is P=MC or MR=MC

P = 22 – 0.01Q = 40 – 12Q + Q2

Q2 – 11.99Q + 18

P = 22 – 0.01Q

TR = 22Q – 0.01Q2

MR = 22 – 0.01Q = 40 – 12Q + Q2

Q =10.231 or 1.760

P =21.89769 or 21.9824

Losses =TR-TC = 22Q – 0.01Q2 – 40Q + 6Q2 - 1/3Q3
= -1021.95 or -1041.98

100 producers

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