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KIM [24]
3 years ago
5

A perfectly competitive industry consists of many identical firms, each with a long-run average total cost of LATC = 800 – 10Q +

0.1Q2 and long-run marginal cost of LMC = 800 – 20Q + 0.3Q2. In long-run equilibrium, each firm produces a quantity of ____.
Business
1 answer:
harkovskaia [24]3 years ago
7 0

Answer:

Each firm produces a quantity of 50 in long run equilibrium.

Explanation:

If a perfectly competitive industry of many identical firms has a long-run average total cost of LATC = 800 – 10Q + 0.1Q² and long-run marginal cost of LMC = 800 – 20Q + 0.3Q², for long run equilibrium to occur, LATC must be equal to LMC i.e LATC = LMC.

Equating both cost equation to get quantity Q each firm produces gives;

800 – 10Q + 0.1Q² = 800 – 20Q + 0.3Q²

Bringing all the terms to one side of the equation, we will have;

800-800-10Q+20Q+0.10Q²-0.3Q² = 0

10Q-0.2Q² = 0

Factorizing out Q, the equation becomes;

Q(10-0.2Q) = 0

From the resulting equation;

10-0.2Q = 0

10 = 0.2Q

Q= 10/0.2

Q = 50

This shows that each firm produces a quantity of 50 in long run equilibrium.

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Exercise 5-1 The Effect of Changes in Activity on Net Operating Income [LO5-1] Whirly Corporation’s contribution format income s
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Answer:

See the explanation.

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Requirement 1

New sales volume after increasing 40 units = (7,200 + 40) = 7,240 units. The revised net operating income is calculated as follows

                          Whirly Corporation’s

              Contribution format income statement

              For the year ended December 31 20YY

Sales Revenue (7,240 × 33) = $ 237,600 (Note - 1)

Less: Variable expense (7,240 × 19) = 136,800 (Note - 2)

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From requirement 1 we get,

Sale price per unit = $33

Variable expense per unit = $19

New sales volume after decreasing 40 units = (7,200 - 40) = 7,160 units. The revised net operating income is calculated as follows

                           Whirly Corporation’s

              Contribution format income statement

              For the year ended December 31 20YY

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Requirement 3

From requirement 1 we get

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Variable expense per unit = $19

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              Contribution format income statement

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Contribution Margin = $86,800

Less: Fixed Expense  $54,900

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If the company sells 6,200 units, the company can still make a profit.

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