1. Perfect Competition

The market for potato chips in Ausland is perfectly competitive with many small producers of potato chips. Each small firm produces 10,000 packets of chips per year. A packet of chips has an average total cost of $1.50 and an average fixed cost of $0.20. Each packet sells for $2:50.

a. What is the marginal cost of producing a packet of chips? (2 Marks)

b. Is the industry in a long run equilibrium? Explain your answer. (3 Marks)