Let's solve each part step by step: --- ### (a) **Suppose the market price is $110, and all firms in the market have identical cost structures. Is the market in long-run equilibrium?** #### **Step 1: Recall the condition for long-run equilibrium in perfect competition** - In the long run, firms produce at the point where **Price = Minimum Average Total Cost (ATC)** and **Price = Marginal Cost (MC)**. - Firms earn **zero economic profit** in long-run equilibrium. #### **Step 2: Find the minimum ATC and the corresponding quantity** From the table: - ATC for different quantities: - Q = 10: ATC = 150 - Q = 20: ATC = 95 - Q = 30: ATC = 90 **(Minimum)** - Q = 40: ATC = 135 - Q = 50: ATC = 180 - Q = 60: ATC = 250 The **minimum ATC is 90 at Q = 30**. #### **Step 3: Compare market price with minimum ATC** - Given **market price = $110** - **Minimum ATC = $90** #### **Step 4: Apply the equilibrium condition** - For long-run equilibrium: **Price = Minimum ATC** - Here, **Price > Minimum ATC ($110 > $90)** This means firms are making **positive economic profit**. In long-run equilibrium, this is not possible—**new firms would enter** the market, driving the price down to minimum ATC. #### **Step 5: Choose the correct answer** - **Option (i) NO** is **correct**. ##### **Reasoning for options:** - **(i) NO:** Correct, because the price is above minimum ATC, so the market is not in long-run equilibrium. - **(ii) Can't determine:** Incorrect, because we have sufficient information (cost structure, market price) to answer. - **(iii) Yes:** Incorrect, because price must equal minimum ATC for long-run equilibrium. --- ### (b) **Suppose the market price is $110, but firms in the market may have different cost structures. Is the market in long-run equilibrium?** #### **Step 1: Recall the long-run condition with different cost structures** - With **different cost structures**, some firms may have higher or lower ATC. - In long-run equilibrium, **only firms with the lowest ATC (efficient firms) will survive**, and the market price will equal the minimum ATC of these efficient firms. #### **Step 2: What can we infer?** - The table only gives us **one cost structure** (the one shown). - If **some firms have higher cost structures**, they could be making losses at $110 and may exit. - If **some firms have lower cost structures**, they could make profits and new firms would enter, pushing price down. Thus, **with different cost structures and only knowing one cost structure**, we **cannot determine** if the market is in long-run equilibrium. #### **Step 3: Choose the correct answer** - **Option (ii) Can't determine** is **correct**. ##### **Reasoning for options:** - **(i) NO:** Incorrect, because it's possible that the market is in equilibrium if the lowest-cost firms have ATC = $110. - **(ii) Can't determine:** Correct, because we don't know the cost structure of all firms. - **(iii) Yes:** Incorrect, because we can't be sure without knowing about all cost structures. --- ## **Final Answers:** ### (a) **NO** (Option (i)) **Reason:** Price is greater than minimum ATC, so firms earn positive economic profit, not zero profit as required in long-run equilibrium. ### (b) **Can't determine** (Option (ii)) **Reason:** With different cost structures, we lack enough information about other firms’ costs to determine if the market is in long-run equilibrium. --- **Summary Table:** | Question | Correct Option | Reason (Correct) | Reason (Incorrect) | |----------|---------------|----------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------| | (a) | (i) NO | Price > min ATC, so not in long-run equilibrium | (ii) Sufficient info given; (iii) Price must equal min ATC for LR equilibrium—here, it doesn't. | | (b) | (ii) Can't determine | Other firms may have different costs; can't know if P = min ATC for survivors | (i) Some firms may survive at P = $110; (iii) Not enough info to confirm all survivors have ATC = $110. |