Question

In: Economics

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

For the price between 0 to 20, no firm is going to produce anything as the price in this range is below the minimum of LAC. So, at the price of Rs 20, the price line is equal to the minimum of LAC.

At equilibrium price of Rs 20

Quantity supplied = qs = 8 + 3p

= 8 + 3 (20)

qs = 68 units

Quantity demanded qd= 700 − p

= 700 − 20

qd = 680

Number of firms (n)= qd/qs

=680/68

n = 10 firms

Therefore, the number of firms in the market is 10 and the equilibrium quantity in 680 units.

Rahul Sunny answered 2 years ago
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