Question

A number of stores offer film developing as a service to their customers. Suppose that each store offering this service has a cost function​ (C) ​C(q)equals50plus0.20qplus0.0800q squared and a marginal cost​ (MC) of ​MC(q)equals0.20plus0.160q. If the going rate for developing a roll of film is ​$8.00​, is the industry in​ long-run equilibrium? No .Find the price associated with​ long-run equilibrium. The market will be in​ long-run equilibrium when the price is ​$ 25. ​(Enter your response rounded to two decimal places.​)

Answer 1

Answer:

Check the following calculations.

Explanation:

C(q) = 50+0.20q+0.0800q2

MC(q)=0.20+0.160q

In the long run market will be in equilibrium when P=MC=ATC=LRAC=LRMC

where LRAC=long run average cost curve

LRMC=long run marginal cost curve

ATC=average total cost

noe total cost C(q)= 50+0.20q+0.0800q2

therefore ATC=C(q)/q

= 50/q + 0.20 + 0.0800q

therefore in long run MC=ATC

0.20+0.160q=50/q + 0.20 + 0.0800q

on solving q=25

therefore P=ATC=MC=0.20+0.160q

=0.20+0.16*25

P = 4.20