rm now offersqi= 22BTW](d) (6 marks) In the long runfirms can enter or exit the market. In this casefirms enterentry because they are profitable in the SR withP= 18.Entry or exit will take placeuntilfirms operate at the quantity for which the average total cost (ATC) is minimal. Theprevailing market price will be equal to the ATC at its minimum level (e.g. Figure 11-15)There are two ways tofind the point where the ATC is minimal: (1) Find the point whereMC=ATC. (2) Directlyfind the point where ATC is minimal. I like the second way better.ATC(qi) =C(qi)/qi= 0.5qi−4 + 200/qi.At the minimum the derivative is 0 so we getthe FOC 0.5−200/q2i= 0.This givesqi= 20 and hence in the LR equilibrium we havePLR= 0.5∗20−4 + 200/20 = 16.3
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