Question

Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q =10000/p. If the long-run supply curve is horizontal, then how much will consumers spend, in total, on potatoes? (a)$0 (b)$500 (c)$10,000 (d)$50,000

Answer 1

Answer:

(c) $10,000

Explanation:

If the long-run supply curve is horizontal, then the supply will remain the same in the long-run. The total amount of money (A) that consumers will spend, in total, on potatoes is given by the product of the quantity purchased by the price, and can be found by rearranging the demand function:

$Q =10000/p\\A=p*Q = \ 10,000$

Consumers will spend $10,000 on potatoes.