After graduation, you plan to work for Dynamo Corporation for 12 years and then start your own business. You expect to save and
1 answer:
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Answer:
a. $1.5; b. 10 units; c. $7; d. $6
Explanation:
There are 5 identical firms in a market.
These firms sell widgets.
The fixed cost of each firm is $9.
The marginal cost of your first through fifth widgets are $1, $2, $3, $7, and $8, respectively.
a. The total variable cost for producing two widgets
= $1 + $2
= $3
The average variable cost
=
=
= $1.5
b. The firms will supply the level of output where the price is able to cover the marginal cost of production.
At the price level $2.5, the marginal cost of producing 2 units i.e $2 is being covered. So the firms will supply 2 units each. The market supply will be 10 units.
c. The equilibrium price will be such that it is able to cover the marginal cost of production and the average variable cost.
The average variable cost
=
=
= $3.25
That price is $7, so it will be the equilibrium price.
d. In the long run, the equilibrium price will be determined at the point where price equals ATC.
The total variable cost for producing two widgets
= $1 + $2 + $3 + $7 + $8
= $21
The total cost
= TFC + TVC
= $21 + $9
= $30
The average total cost
=
=
= $6
So, the long run price will be $6.