A firm in a purely competitive industry is currently producing 1.200 units per d

Question

A firm in a purely competitive industry is currently producing 1.200 units per day at a total cost of $700. If the firm produced 1.000 units per day, its total cost would be $450. and if it produced 700 units per day, its total cost would be $425. Instructions: In parts a and c, round your answers to 2 decimal places. In part d. round your answer to 1 decimal place. What are the firm's ATC at these three levels of production? At 1, 200 units per day, ATC = $. At 1.000 units per day, ATC = $. At 700 units per day, ATC = $. If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? From what you know about these firms' cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium? $ If that price ends up being the market price and if the normal rate of profit is 10 percent, then how big will each firm's accounting profit per unit be? cents per unit.

Explanation / Answer

ATC = TC / quantity

So,

At 1,200 units per day, ATC = $(700 / 1200) = $0.58

At 1000 units per day, ATC = $(450 / 1000) = $0.45

At 700 units per day, ATC = $(425 / 700) = $0.61

b. This industry is not in a long run competitive equilibrium, because to be in a long run competitive equilibrium firms must produce at the minimum level of ATC. When the firm is producing 1200 units, its ATC is grater than the ATC for the production of 1000. So, it is not produce at the minimum level of ATC.

c. The highest possible price per unit that could exist as the market price in long run equilibrium is $0.45.

Because in the long run competitive industry, highest market price will be at a point where price equals to minimum level of ATC.

d. The accounting profit will be 10% of $0.45 = $0.045. As in the long run price will be $0.45. And as the normal rate of profit is 10%.

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