Question

An industry currently has 100 firms, each of which has fixed cost of $16 and average
variable cost as follows:
Quantity Average Variable Cost
1 $1
2 2
3 3
4 4
5 5
6 6

a. Compute a firm’s marginal cost and average total cost for each quantity from 1 to 6.
b. The equilibrium price is currently $10. How much does each firm produce? What is
the total quantity supplied in the market?
c. In the long run, firms can enter and exit the market, and all entrants have the same
costs as above. As this market makes the transition to its long-run equilibrium, will the
price rise or fall? Will the quantity demanded rise or fall? Will the quantity supplied by
each firm rise or fall? Explain your answers.
d. Graph the long-run supply curve for this market, with specific numbers on the axes
as relevant.