Question

The green company produces chemicals in a perfectly competitive market. The current market price is 40, the firms total cost is C= 100+4Q+Q2

a.How would the increase in fixed cost affect the markets long-run equilibrium price? The number of firms?(Assume thag Green's costs are typical in the market.)

Answer 1

a. The increase in fixed cost will decrease the markets long-run equilibrium price, because the number of firms will decrease as some firms will exit the market until P = MC = ATC.