1. In 2010, the box industry was perfectly competitive. The lowest point on the long-run average cost curve of each of the identical box producers is $4, and this minimum point occurs at an output of 1,000 boxes per month. The market demand curve for boxes is
QD = 140,000 - 10,000 P,
where P is the price of a box (in dollars per box), and QD is the quantity of boxes demanded per month. The market supply curve for boxes is
QS = 80,000 + 5,000 P, where QS is the quantity of boxes supplied per month.
a. What was the equilibrium price of a box? Is this the long-run equilibrium price?
b. How many firms are in this industry when it is in long-run equilibrium?
2. The White Company is a member of the lamp industry, which is perfectly competitive. The price of a lamp is $50. The firm's total cost function is
TC = 1,000 + 20 Q + 5 Q2, where TC is the total cost (in dollars) and Q is hourly output.
a. What output maximizes the White Company's profit?
b. What is the White Company's economics profit? Should the White Company continue in business or shut down in the short-run? Why?
c. What is the White Company's average total cost at this output level?
d. If other firms in the lamp industry have the same cost function as the White Company, is this industry in long-run equilibrium? Why or why not?