(a) All firms in a perfectly competitive industry face the same long-run average cost
curve, AC = 0.05q – 5 + 500/q, and the same long-run marginal cost curve given by
MC = 0.1q – 5. The market demand for the product of these firms is QD = 100,000 –
10,000P.
i.Calculate the equilibrium price and quantity.
ii.Assuming the market is in long-run equilibrium, how many firms will be on the
market?
(b) Suppose the demand for cotton T-shirts is given by QD =1900–200P, where Q is the
number of T-shirts and P is the price in dollars per T-shirt. The long-run supply curve for
T-shirts is given by QS = 50P–100. Calculate consumer and producers surplus at
equilibrium price and quantity.