Gasoline stations under perfectly competitive conditions

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Gasoline is sold through local gasoline stations under perfectly competitive conditions. All gasoline station owners face the same long-run average cost curve given by AC = .01q-1 +100/q and the same long-run marginal cost curve given by MC = .02q-1 where q is the number of gallons sold per day. a. Assuming the market is in long-run equilibrium, how much gasoline will each individual owner sell per day? What are the long-run average cost and marginal cost at this output level? b. The market demand for gasoline is given by QD = 2,500,000 - 500,OOOP where Qo is the number of gallons demanded per day and P is the price per gallon. Given your answer to part a, what will be the price of gasoline in long-run equilibrium? How much gasoline will be demanded, and how many gas stations will there be? c. Suppose that because of the development of solar-powered cars, the market demand for gasoline shifts inward to QD = 2,000,000 - 1,000,OOOP In long-run equilibrium, what will be the price of gasoline? How much total gasoline will be demanded, and how many gas stations will there be? d. Graph your results.

Reference no: EM131103632

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