Question

In a competitive market, the demand and supply curves are Q(p)=12-p and S(p)=3p respectively. What is the output level in a competitive equilibrium in this economy?

a. 8

b. 4

c. 9

d. 3

Answer 1

There is equilibrium in the market when the quantity demanded is equal to the quantity supplied in the market. There is neither shortage nor surplus in the market.

The demand function is given as:

Q(p) = 12 - p

The supply function is given as:

S(p) = 3p

Equating both functions:

12 - p = 3p

4p = 12

p = 3

When p = 3, the equilibrium quantity is 3(3) = 9 units. So, the equilibrium price is $3 and the equilibrium output level is 9 units. Therefore, the correct answer is 'Option C'.