Market Structure Problem: The Widget Industry
The Widget industry is perfectly competitive. The lowest point on the long-run average cost curve of each of the identical widget producers is $4 and this minimum point occurs at an output of 1,000 widgets per month. When the optimal scale of a firm's plant is operated to produce 1,150 widgets per month, the short-run average cost of each firm is $5. The market demand curve for widgets is:
Qd = 140,000 - 10,000P where Qd is the quantity of widgets demanded per month and P is the price of a widget.
The market supply curve is:
Qs= 80,000 + 5,000P, where Qs is the quantity of widgets supplied per month and P is the price of a widget.
Question: What is the equilibrium price of a widget? Is this the long-run equilibrium price, and if so, how did you know this?