Consider a competitive industry with several firms all of which have the same cost function, c(y)  y²  4 for y  0 and c(0)  0.The demand curve for this industry is D(p)  50 2 p, where p is the price.The long-run equilibrium number of firms in this industry is

A) 4.
B) 23.
C) 25.
D) 46.
E) 2.

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Paige Ashley Nelson · Accepted Answer

Final Answer : B, Explanation :  In a long-run equilibrium, the firms will produce where P = MC = AC. Using the cost function given, we derive the marginal cost function as MC(y) = 4. Therefore, P = 4. In the long-run equilibrium, each firm will produce where P = AC = minimum ATC. Using the cost function given, we derive the average cost function as AC(y) = (4y+1)/y. Setting P=4 equal to AC, we get y=23. Therefore, the long-run equilibrium number of firms in this industry is 23.

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