The market demand curve for commodity X is qD = 700-p. Now, let us allow for...

The market demand curve for commodity X is qD = 700-p. Now, let us allow for free entry and exit of the firms producing commodity X. Also assume the market consists of identical firms producing commodity X. Let the supply curve if a single firm be explained as:
qSf = 8+3p for p>20
= 0 for 0<p<20
a. What is the significance of p =20
Calculate the equilibrium quantity and number of firms at the equilibrium price of 20.

Solutions

Expert Solution

The significance of P = 20 is that below this price, no seller would sell any of its goods in the market and the supply of the good will become zero. At P > 20, the supply curve exhibits a linear function. The price P = 20 is the break even price of the firms.

At equilibrium, Qd = Qs

Or, 700 - P = 8 + 3P

Or, 4P = 700 - 8 = 692

Or, P = 692/4 = 173

Thus the equilibrium price is P = 173

Now, equilibrium quantity , Q^*_d= 700 - P = 700 - 173 = 527

Rahul Sunny answered 2 years ago

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