Firms A, B, and C all produce roof shingles in a perfectly competitive market. The diagrams below show marginal cost curves for each of the three firms.

a. Suppose each firm is producing 1000 bundles per day. Is this industry productively efficient?

b. If the industry?s total output is to be maintained at 3000 bundles, how should the production be allocated among the firms in order to minimize the total cost of production?

c. If the market price of a bundle of roof shingles is $20, how many bundles should each firm produce if it wants to maximize its profits? Is this outcome also productively efficient? Explain.

d. Is the outcome from part (c) also allocatively efficient in this industry? Explain.

Transcribed Image Text:

Firm A Firm B Firm C 40 40 40 35 35 35 30 MC. MC , 30 MCC 25 25 25 20 20 15 15 10 10 10 200 600 1000 1400 1800 200 600 1000 1400 1800 200 600 1000 1400 18 Bundles per Day Bundles per Day Bundkes per Day