In a purely competitive industry Company X currently produces 1000 units/day at

Question

In a purely competitive industry Company X currently produces 1000 units/day at a total cost of $450. If Company X produced 800 units/day, cost would be $300; 500 units/day total cost would be $275. What are the firm's ATC per unit at each level of production? If every company in the industry has the same cosdt structure, is the industry in long run competitive equilibrium? What is the highest possible price per unit that could exist as the market price in long run equilibrium? If that price were the market price and the normal rate of profit is 10%, then how big will each firm's accounting profit per unit be?

Explanation / Answer

firm's ATC per unit at each level of production:

1000 units/day :1000/450 = $2.222

800 units/day : 800/300 =$2.667

500 units/day : 500/275 = $ 1.82

If every company in the industry has the same cosdt structure, the industry is not in long run competitive equilibrium since the ATC is increasing with increase of production which should generally be decreased .

the highest possible price per unit that could exist as the market price in long run equilibrium will depend upond its cost of production , hence preice may go very high at higher production

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