Answer:
Produce 6 units of output in the short run and face competition from new market entrants in the long run.
Explanation:
A firm is operating in a competitive market condition:
Fixed cost = $5 at the output level of 0 unit.
When market price = $16,
Marginal cost of producing 6th unit:
= Total cost of producing 6th unit - Total cost of producing 5th unit
= $40 - $24
= $16
Total revenue at 6 units:
= No. of units × market price
= 6 × $16
= $96
Total cost of producing 6th unit = $40
Total revenue is greater than the total cost at the production level of 6th unit.
This would implies that there is a positive economic profit and this will induce the new firms to enter into the market in the long run.
