Asked by Breydon English on Jul 22, 2024
Verified
The following table applies to a purely competitive industry composed of 100 identical firms. QuantityQuantityDemandedPriceSupplied400,000$5800,000500,0004700,000600,0003600,000700,0002500,000800,0001400,000\begin{array}{lcl}Quantity&&Quantity\\Demanded &Price &Supplied\\\hline400,000 & \$ 5 & 800,000 \\500,000 & 4 & 700,000 \\600,000 & 3 & 600,000 \\700,000 & 2 & 500,000 \\800,000 & 1 & 400,000\end{array}QuantityDemanded400,000500,000600,000700,000800,000Price$54321QuantitySupplied800,000700,000600,000500,000400,000 Refer to the table.If each of the 100 firms in the industry is maximizing its profit and earning only a normal profit,each must have an average total cost of:
A) $2.
B) $3.
C) $4.
D) $5.
Average Total Cost
The total cost divided by the number of units produced, representing the average cost of production per unit.
Purely Competitive Industry
An industry characterized by many firms offering identical products where no single firm can influence the market price.
Normal Profit
The minimum level of profit needed for a company to remain competitive in the market, typically considered as the cost of doing business, including opportunity costs.
- Explore the influence of financial profits on a corporation's production strategies.
- Comprehend the connection between market demand and equilibrium price within completely competitive markets.
Verified Answer
BB
Brianna BirruetaJul 23, 2024
Final Answer :
B
Explanation :
In a purely competitive market, firms maximize profit where price equals marginal cost, and earning only a normal profit implies that price also equals average total cost. The equilibrium occurs where quantity demanded equals quantity supplied, which is at a price of $3 (600,000 units demanded and supplied). Therefore, each firm must have an average total cost of $3 to be earning only a normal profit at this equilibrium point.
Learning Objectives
- Explore the influence of financial profits on a corporation's production strategies.
- Comprehend the connection between market demand and equilibrium price within completely competitive markets.