Suppose that,in the long run,a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.The long run market supply curve is: A) vertical at 5 gallons per day. B) horizontal at $20 per gallon. C) horizontal at $50 per gallon. D) horizontal at $100 per gallon.

Question

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In the long run, a firm will choose to produce where MC = P, and since the marginal cost of this dairy is MC = 4Q, the long run equilibrium price will be P = 4Q. The total cost for this dairy can be expressed as: TC = 50 + VC = 50 + 2Q² Since the fixed cost of $50 is avoidable, the dairy will only continue to operate if it covers its variable costs, which are given by VC = 2Q² To find the dairy's optimal output, we set its marginal cost equal to its marginal revenue (which is equal to market price under free entry and exit), giving: 4Q = P = 4Q Solving for Q, we get Q = 5, which means that the dairy will produce 5 gallons of milk per day in the long run. Plugging Q = 5 back into the expression for market price, we get P = 4(5) = $20. Therefore, the long run market supply curve is horizontal at $20 per gallon.

Suppose That,in the Long Run,a Dairy's Variable Costs Are VC