clear answer please 2. (In the following problem do not confuse between market d

Question

clear answer please

2. (In the following problem do not confuse between market demand/supply with individual firm's demand/supply) Assume the market for tortillas is perfectly competitive. The market demand and supplyfunctions for tortillas are given as follows: Demand: Q 550,000-50,000P Supply: Q 500,000P tc MC 0.1 + 0.0009q (i) (10 points) Determine the market equilibrium price and market equilibrium quantity (ii) (10 points) Find the profit maximizing output level in the short run for the typical (ii) (5 points) Assuming that all the tortilla factories are identical, how many tortilla for tortillas. firm A. factories are producing tortillas?

Explanation / Answer

a) Equilibrium is established when market demand equals market supply

550,000 - 50,000P = 500,000P

P* = 1, This gives Q = 500,000 x 1 = 500,000 units

b) For one firm, price is taken as given so we use P = MC

1 = 0.1 + 0.0009q

This gives q = 1,000 units. This is the short run profit maximizing level

c) Market demand is 500,000 units and each firm is making 1,000 units so number of firms are 500,000/1,000 = 500 firms.

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