Question
Number 6 6. (12 pts) Gasoline is sold through local gas stations under perfectly competitive conditions....
number 6
6. (12 pts) Gasoline is sold through local gas stations under perfectly competitive conditions. All gas station owners face the same long-run total cost function given by: | LRTC = 0,01g - 29+1014 Where is the number of gallons sold per day. (a) Assuming the market is in long-run equilibrium, how much gas will each firm sell per day? What is the value of long-run average cost at this output level? What is the long run equilibrium price? (b) The market demand for gasoline is given by: Qp = 2,500,000 - 500,000P Where Op is the number of gallons demanded per day and P is the price per gallon. Given your answer to part (a), how much gasoline will be demanded and how many gas stations will there be?
Answers
Anya) Market is in long oun equilibrium, so, price will be at minimum of APC curve. LRTC= 0.0193–2q² + 1019 -SO, ATC = LRTC = 0.019² - 2q + 101 E = 0.02q - 220 dq - 9- 2002 = 100 value of long run aug. pd cost = 0.01(10012- 2(100)+10 = 100-200+ 101 = 1 I and long run equilibrium price - $1. (P= min ATC) ' 90 = 2,500,000 - 500,000 P and at p=1 QD = 3,500,000 - 500,000 = 3000,000 I no. of gas stations = 9o = 2,000,000 100 220000
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