Equilibrium of a competitive industry

by | Aug 4, 2021 | Assignment

Topic: (Perfect competition, adjustment to LR equilibrium) Question:. Suppose that P = MC = $16, AVC = $14 and ATC = $18 at the level of output chosen by all firms in a short-run equilibrium of a perfectly competitive industry.a) (15 marks) Explain what will happen to (i) output per firm (q), (ii) industry output (Q), (iii) industry price (P) and (iv) the number of firms (n) as the industry adjusts to the new long-run equilibrium. Use industry and firm diagrams to explain your answer.b) (5 marks) Determine whether or not it is possible to determine whether the new long-run equilibrium price will be (i) 16 or (ii) 18 or (iii) between 16 and 18 or (iv) greater than 18.

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