Gasoline is sold through local gas stations under perfectly competitive conditions and is a constant cost industry. All gas station owners face the same long-run average cost function: AAAA = 0.01qq − 1 + 100 qq and the same long-run marginal cost function: MMMM = 0.02qq − 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 gas station 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: QQDD = 2,500,000 − 500,000PP where QD is the number of gallons demanded per day and P is the price per gallon. Given your answer to part a, what is the price of gas in long-run equilibrium? How much gas will be demanded? How many gas stations will there be? c) Suppose that market demand decreases to QQDD = 2,000,000 − 1,000,000PP due to advances in electric cars. In long-run equilibrium, what is the price of gas? How much gas will be demanded? How many gas stations will there be?

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Gasoline is sold through local gas stations under perfectly competitive conditions and is a constant
cost industry. All gas station owners face the same long-run average cost function: AAAA = 0.01qq −
1 + 100
qq and the same long-run marginal cost function: MMMM = 0.02qq − 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 gas station 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: QQDD = 2,500,000 − 500,000PP where QD is the number of
gallons demanded per day and P is the price per gallon. Given your answer to part a, what is the
price of gas in long-run equilibrium? How much gas will be demanded? How many gas stations
will there be?
c) Suppose that market demand decreases to QQDD = 2,000,000 − 1,000,000PP due to advances in
electric cars. In long-run equilibrium, what is the price of gas? How much gas will be demanded?
How many gas stations will there be?

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