Suppose That Each Firm in an Industry Has Total Costs

question 15

Essay

Suppose that each firm in an industry has total costs as shown in the following table. (A)Suppose that the quantity demanded in the market is perfectly inelastic at a quantity of 6. Calculate the average total cost for each firm when there are 1, 2, and 6 firms in the industry. Draw a diagram indicating the relationship between average total cost and the number of firms.
(B)Suppose the quantity demanded in the market expands because of an opening of trade and is now perfectly inelastic at a quantity of 8. Draw a diagram, similar to the one in part (A), indicating the relationship between average total cost and the number of firms. Why does this opening of trade cause this shift in the curve?
(C)What happens to price in the long run? Explain.

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Definitions:

Annulus Fibrosus

The tough outer layer of the intervertebral disc that encloses the soft, gelatinous core called the nucleus pulposus.

Nucleus Pulposus

The inner core of the vertebral disc, composed of a jelly-like material that provides the disc with its ability to absorb shock and maintain spinal flexibility.

Spinous Process

The spinous process is a bony projection off the posterior (back) of each vertebra, which muscles and ligaments attach to.

Inferior Projection

A downward anatomical direction or extension from a main structure.