In Problem 5, in the long run, what is the market price and the quantity of paper produced? What is the number of firms in the market?

Question

What will be an ideal response?

Answer 1

In the long run, the price equals the minimum average total cost, $10 a box. The number of firms in the long run is 750 . In the long run, as firms exit the industry, the price rises. In the long-run equilibrium the price will equal the minimum average total cost. When output is 400 boxes a week, marginal cost equals average total cost and average total cost is a minimum at $10 a box. In the long run, the price is $10 a box. Each firm remaining in the industry produces 400 boxes a week. The quantity demanded at $10 a box is 300,000 boxes a week. The number of firms is 300,000 boxes divided by 400 boxes per firm, which is 750 firms. In the long run, the 750 firms together produce the equilibrium quantity of 300,000 boxes.