Considering the same demand curve as in exercise 22, 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 of 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? (b) At what price will the market for X be in equilibrium? State the reason for your answer. (c) Calculate the equilibrium quantity and number of firms.
Answers
It is given that;
qd = 700 − p
qs = 500 + 3p for p > Rs 15
= 0 for 0 ≤ p < 15
The market supply is zero for any price from Rs 0 to Rs 15, this is because, for price between 0 to 15, no individual firm will produce any positive level of output (as the price is less than the minimum of AVC). Consequently, the market supply curve will be zero.
At equilibrium qd = qs
700 − p = 500 + 3p
− p −3p = 500 − 700
− 4p = − 200
p = 50
Equilibrium price is Rs 50.
Quantity = qs = 500 + 3p
= 500 + 3 (50)
= 500 + 150
= 650
Therefore, the equilibrium quantity is 650 units.
Answer:
equilibrium price = 50 & equlibrium quantity = 650
Explanation:
It is given that;
qd = 700 − p
qs = 500 + 3p for p > Rs 15
= 0 for 0 ≤ p < 15
The market supply is zero for any price from Rs 0 to Rs 15, this is because, for price between 0 to 15, no individual firm will produce any positive level of output (as the price is less than the minimum of AVC). Consequently, the market supply curve will be zero.
At equilibrium qd = qs
700 − p = 500 + 3p
− p −3p = 500 − 700
− 4p = − 200
p = 50
Equilibrium price is Rs 50.
Quantity = qs = 500 + 3p
= 500 + 3 (50)
= 500 + 150
= 650
Therefore, the equilibrium quantity is 650 units.