Perfect_Competiton.docx - Question 1 The long run equilibrium occurs where Price equals ATC such that profits of each firm is zero q1 is the output of

Perfect_Competiton.docx - Question 1 The long run...

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Question 1 The long run equilibrium occurs where Price equals ATC such that profits of each firm is zero. q 1 is the output of each frim and there are n 1 firms such that the aggregate output is Q 1 at the current price level. The long run supply of the industry is the sum of individual supplies by the firms.
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Question 2 After the rise in costs. The MC and ATC shifts upward to MC 2 and ATC 2 respectively. Now, at current price P 1 , ATC is higher than price at current output level for firms at q 1 , so they reduce their quantity to q 2 ’. As a result the supply curve shifts leftwards. Due to this, the equilibrium price rises to P 2 and firms supply a little more i.e. q
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