Suppose the following information about a particular industry: Q^D = 4,800 - 100P (Market demand)...


Suppose the following information about a particular industry:

{eq}Q^D = 4,800 - 100P\;\;(Market \;demand)\\ Q^S = 1,500P\;\; (Market \; supply)\\ C(q)=641 + \frac{q^2}{400} \;\; (Firm \; total \; cost \;function)\\ MC(q)=\frac{2q}{400}\;\; (Firm\;marginal\;cost \;function) {/eq}

Assume that all firms are identical and that the market is characterized by perfect competition.

Find the equilibrium price, the equilibrium quantity, the output supplied by the firm, and the profit of each firm.

Market Equilibrium under Perfect Competition:

In perfectly-competitive markets, there are many buyers and sellers, each of which sells an identical product. In such markets, the price is set by the market as a whole, and each firm determines the optimal amount of output to produce, given that price and the firm's cost function.

Answer and Explanation: 1

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Answer: The equilibrium price is $3, the equilibrium quantity 4,500 and the firm profit is $259.

The market equilibrium price is determined at the...

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Perfect Competition in Economics & Adam Smith's 'Invisible Hand'


Chapter 7 / Lesson 1

Perfect competition is perpetuated in regulated economic market systems, as the concept of the 'invisible hand,' devised by Adam Smith, keeps supply and demand lines in check. Learn more about these concepts, the five requirements for a perfectly competitive market, and market equilibrium, seeing applications of each through examples.

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