DIS 11 Handout - Aniko Oery University of California...

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Aniko Oery University of California, Berkeley Section 11: Long-run competitive equilibrium Econ 100A, MICRO-ECONOMIC ANALYSIS, Spring 2010 1 Long-run competitive equilibrium Remember from class that you need to solve the following system of three equations with the three unknown ( P, Q, N ) in order to find the long-run competitive equilibrium: 1. profit maximization: MC ( Q ) = P 2. zero profit: P · Q - TC ( Q ) = 0 3. quantity demanded is equal to quantity supplied (market clearing): D ( P ) = N · Q . 2 Practice Problem from the 3rd edition of the textbook ”Microeconomics” by Bersanko and Braeutigam The long-run average cost for production of hard-disk drives is given by AC ( Q ) = wr (120 - 20 Q + Q 2 ) , where Q is annual output of a firm, w is the wage rate for skilled assembly labor, and r is the price of capital services. The corresponding long-run marginal cost curve is MC ( Q ) = wr (120 - 40 Q + 3 Q 2 ) . The demand for labor for an individual firm is L ( Q, w, r ) = r (120 Q - 20 Q 2 + Q 3 ) 2 w .
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