Economics Q68
68The demand schedule in a perfectly competitive market is given by P = 65 – 2.2Q (for Q ≤ 55). The long-run cost structure of each company is:
| Total cost | 243 + 3Q + 6Q² |
| Average cost | 243/Q + 3 + 6Q |
| Marginal cost | 3 + 9Q |
New companies will enter the market at any price greater than:
- Option : C
- Explanation : The long-run competitive equilibrium occurs where MC = AC = P for each company. By equating MC and AC, 3 + 9Q = 243/Q + 3 + 6Q 3Q + 9Q² = 243 + 3Q + 6Q² 3Q² = 243, Q = 9 The equilibrium price can be found by using the following equation: P = 3 + 9Q = 84. Any price above 84 yields an economic profit because P = MC > AC, so new companies will enter the market. Note that the demand curve for< the market is not needed for this problem.
