Industry Analysis: Ice Tea Cost Information
What price must prevail in the market for a typical firm to operate in the short run? At this price, how many ice tea will be supplied by all firms in the market?
In the short run, a company will operate if the price of the product is equal to the average variable cost. The short-run supply curve, which is the firm's marginal cost curve above the average variable cost, indicates the profit-maximizing quantity that the company can supply at each price.
Answer:
The price must be equal to the average variable cost, which is $4.00. Therefore, for a typical company to operate in the short run, the price must be $4.00. The number of ice tea that all the firms will supply can be calculated by summing the quantities supplied by each firm.
In the short run, a company will operate if the price of the product is equal to the average variable cost. The short-run supply curve, which is the firm's marginal cost curve above the average variable cost, indicates the profit-maximizing quantity that the company can supply at each price. Therefore, the price must be equal to the average variable cost:
Price = Average Variable Cost = $4.00
At $4.00 per ice tea, the quantity supplied by a typical firm is 3 ice teas per hour. To find out how many ice teas will be supplied by all 100 firms in the market, we need to sum up the quantities supplied by each firm:
Total Quantity Supplied = Quantity Supplied by Each Firm * Number of Firms
Total Quantity Supplied = 3 * 100 = 300 ice teas per hour
Therefore, at a market price of $4.00 per ice tea, all 100 firms in the industry will supply 300 ice teas per hour in total.