Question

A firm’s short-run supply curve and market demand curve are given in the following table. The firm is selling its product in a perfectly competitive market, where there are 100 identical firms. What is the market equilibrium price and quantity?   

Short-run supply curve			Market demand curve
Output	Marginal cost		Price	Quantity demanded
1	50		50	700
2	100		100	500
3	150		150	300

Answer 1

A perfectly competitive firm acts as a price taker. That is it takes price as given by the market forces. Each firm maximizes its profit by equating marginal revenue to its marginal cost. In perfect competition the marginal revenue equals to the price. Therefore, each competitive firm maximizes its profit by producing the level of output for which its marginal cost equals to the market price. Each firm faces the horizontal demand curve given the fact that the firm can sell any amount at a given price.

The MC curve is the short run supply curve for individual firm and the horizontal summation of individual MC's are market supply curve. Thus at price 50, one typical firm supply 1 unit and 100 identical firms supply 100. Thus the market quantity is 100. This way the market demand and supply schedule is calculated below

Price	Demand	Supply
50	700	100
100	500	200
150	300	300

Therefore, at equilibrium where demand equals supply at a particular price is given by Q=300 and P=150