Unformatted text preview: the firm’s long run average cost is LRAC = 15. Suppose that the market price is P = 20. (a) Use diagrams to illustrate why P = 20 cannot be the long run equilibrium price. (b) How will the market adjust in the long run and what will the price be? And what assumptions do you need to make? 3. Suppose that the total output produced in a perfectly competitive market in long run equilibrium is 200 units. Suppose that there are n identical firms in the market, each producing an amount 200/ n . The total cost of a single firm in the market is TC = (200/ n ) 2 . If the market price is P = 10, find the number of firms in the market in long run equilibrium....
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- Spring '12
- Economics, long run equilibrium, perfectly competitive market, University of Essex, T Hatton