A Perfectly Competitive Industry Has Two Types of Firms Operating

question 133

Essay

A perfectly competitive industry has two types of firms operating in long-run equilibrium: low-cost and high-cost producers. For the low-cost producers, LATC_L = 100/Q + 0.5Q and LMC_L = Q. For the high-cost producers, LATC_H = 100/Q and LMC_H = 2Q.
a. What's the long-run equilibrium price?
b. How much economic rent does a low-cost producer earn?

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Definitions:

Payback Period

The length of time required to recover the initial investment in a project, without accounting for the time value of money.

Gross Revenues

The total sales revenue of a company without any deductions.

Internal Rate

Often refers to the internal rate of return (IRR), a metric used in capital budgeting to estimate the profitability of potential investments.

Cash Inflows

The total amount of money being transferred into a business, usually from operating, investing, and financing activities.