Question

Assume that you are hired as an analyst at a major New York consulting firm. You first

assignment is to do an industry analysis of the tribble industry. After extensive research and two

all-nighters, you have obtained the following information:

- Long-run costs:

Capital costs: $5 per unit of output

Labor costs: $2 per unit of output

- No economies or diseconomies of scale

- Industry currently earning a normal return to capital (profit is zero)

- Industry perfectly competitive, with each of 100 firms producing the same amount of output.

- Total industry output: 1.2 million tribbles

- Demand for tribbles is expected to grow rapidly over the next few year sto a level twice as

high as it is now, but (due to short-run diminishing returns) each of the 100 existing firms is

likely to be producing only 50 percent more.

a. Sketch the long-run cost curve of a representative firm.

b. Show the current conditions by drawing two diagrams, one showing the industry and

one showing a representative firm.

c. Sketch the increase in demand and show how the industry is likely to respond in the

short run and in the long run.​

Answer 1

Answer:

Sketch the long-run cost curve of a representative firm.