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Unformatted text preview: cost is Suppose that in the long run there is free entry into the market. Assume fixed costs fall to $18 and, in the short
run, the number of firms is fixed (so that neither entry nor exit is possible) and fixed costs are sunk.
Instructions: Round your answers to the nearest whole number.
a. What is the new market equilibrium in the short run? Q* = 10 pizzas. P* = $ 10 .
50 firms in the short run. There are b. What is the new market equilibrium in the long run? Q* = P* = $ There are 6 pizzas.
100 firms in the long run. Explanation: a. AC = (FC + VC)/Q. AC = (50/Q) + (Q/2). Initially, we know that AC = MC: AC = (50/Q) + (Q/2) = Q = MC. Q = 10. We then use this quantity to compute the ACmin : ACmin = (50/10) + (10/2) = 10 = P. P = $10.00. At the equilibrium price of $...
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This note was uploaded on 01/22/2014 for the course ECO 3352 taught by Professor Ax during the Fall '13 term at Troy.
- Fall '13