Assume that the long run average cost for a representative firm in an industry is minimized at $10 per unit of output.Further assume that total industry output is X at a price of $10,and that each firm in this industry produces 0.2X at an average cost of $10.Under these conditions we would expect the market to have:
A)a single firm.
B)two firms.
C)infinite number of firms.
D)five firms.

Question

Quizplus · Accepted Answer

Given that each firm produces 0.2X of the total industry output X and does so at the minimum long run average cost, it implies that the industry consists of multiple firms. Since one firm produces 0.2X, it would take 5 firms (1/0.2 = 5) to produce the total industry output X, indicating that the market structure supports five firms operating at the minimum long run average cost.

Assume That the Long Run Average Cost for a Representative