Does it guarantee that markets are operating efficiently

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Reference no: EM13218935

The following table shows how the total cost of producing canisters of peanuts varies with output and capital in the long run in a perfectly competitive industry. Quantity of Peanut Canisters each hour 0 1 2 3 4 5 6 7 8 Total Cost (K=1) (in dollars) 0 1.00 1.50 3.00 5.00 7.50 10.00 12.50 16.00 Total Cost (K=2) (in dollars) 1.00 1.40 1.70 2.10 2.90 3.80 5.00 6.00 7.20 Total Cost (K=3) (in dollars) 2.00 12.30 2.50 2.60 2.80 3.60 4.50 5.50 6.70

1. Refer to Table . What levels of capital (K=1, K=2, or K=3) would the firm choose in the long run for producing three canisters and five canisters of peanuts per hour, respectively?

2. If firms can freely enter or exit the industry and face the cost structures specified, what is the likely long-run price of a canister of peanuts?

3. What would be the long-run equilibrium result of output expansion in a decreasing-cost industry?

4. What is productive efficiency? Does it guarantee that markets are operating efficiently?

Reference no: EM13218935

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