question archive Suppose that the monthly market demand schedule for Frisbee is Price $8 $7 $6 $5 $4 $3 $2 $1 Quantity demanded 1,000 2,000 4,000 8,000 16,000 32,000 64,000 150,000 Suppose further that the marginal and average costs of Frisbee production for every competitive firm are Rate of output 100 200 300 400 500 600 Marginal cost $2
Suppose that the monthly market demand schedule for Frisbee is Price $8 $7 $6 $5 $4 $3 $2 $1 Quantity demanded 1,000 2,000 4,000 8,000 16,000 32,000 64,000 150,000 Suppose further that the marginal and average costs of Frisbee production for every competitive firm are Rate of output 100 200 300 400 500 600 Marginal cost $2
Subject:MarketingPrice:2.88 Bought3
Suppose that the monthly market demand schedule for Frisbee is
| Price | $8 | $7 | $6 | $5 | $4 | $3 | $2 | $1 |
| Quantity demanded | 1,000 | 2,000 | 4,000 | 8,000 | 16,000 | 32,000 | 64,000 | 150,000 |
Suppose further that the marginal and average costs of Frisbee production for every competitive firm are
| Rate of output | 100 | 200 | 300 | 400 | 500 | 600 |
| Marginal cost | $2.00 | $3.00 | $4.00 | $5.00 | $6.00 | $7.00 |
| Average total cost | 2.00 | 2.50 | 3.00 | 3.50 | 4.00 | 4.50 |
Finally, assume that the equilibrium market price is $6 per Frisbee.
a) How much profit is the typical firm making?
b) In view of the profits being made, more firms will want to get into Frisbee production. In the long run, these new firms will shift the market supply curve to the right and push the price down to average total cost, thereby eliminating profits. At what equilibrium price are all profits eliminated? How many firms will be producing Frisbees at this price?
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a) At a market price of $6
Here
P = Price
ATC = Average total cost
Q = Quantity
Profit = (P-ATC)*Q
Profit = (6-4)*500
Profit = $1000
b) Long-run equilibrium price is the price which is determined at the minimum of average cost which is equal to 2.
At a price of $2
Quantity demanded = 64000
Output = 100 units
Number of firms = 64000 / 100
Number of firms = 640
