Answer
a) Please see the table.
b) 200 pies are sold. Each producer makes 5 pies, which means there are 40 producers. The profit for each producer is 16 dollars.
c) No
d) No profit is earned in the long-run equilibrium, the market price is 7 dollars per pie, and each producer makes three pies. 600 pies are produced by 200 producers.
Work Step by Step
a) The table shows the total cost and the average total cost for each level of output.
b) Since the market price is 11 dollars, only 200 pies are demanded. Since a firm will only produce (in a competitive market) up to the point where price = marginal cost, each firm will produce five pies. (Producing the sixth pie for each firm will incur 12 dollars of marginal cost, which is greater than the price of the pie.)
$200/5=40$
The total cost for each firm is 39 dollars (from the table), and the revenue from the five pies is 55 dollars. Thus, the profit for each producer is 16 dollars.
c) Since each producer is making a profit, this is not a long-run equilibrium. In a long-run equilibrium, firms have no profit.
d) In the long-run, each producer earns no profit. The price decreases until the price is the same as the average total cost. The average total cost has an integer at a quantity per producer of three pies (7 dollars).
At a price of 7 dollars, 600 pies are demanded. Each producer makes three pies, so there are 200 producers in the market.
