Assume the market for tortillas is perfectly competitive. The market supply and demand curves for tortillas are given as follows:
D: P = 11 - .00002Q S: P = .000002Q
The short run marginal cost curve for a typical tortilla factory is: MC = .1 + .0009q
1. Determine the equilibrium price for tortillas.
2. Determine the profit maximizing short run equilibrium level of output for a typical tortilla factory.
3. At the level of output determined in part b above, is the factory making a profit, breaking even, or making a loss? Explain.
4. Assuming that all of the tortilla factories are identical, how many tortilla factories are producing tortillas?