Average Average Average Total Fixed Variable Total Marginal Product Cost Cost 10

Question

Average Average Average Total Fixed Variable Total Marginal Product Cost Cost 100.00 17.00 50.00 16.00 15.00 14-25 20.00 14.00 14.00 15.71 12.5017.50 19-44 10.0021.60 9.09 24.00 8.33 26.67 Cost Cost 117-00 $17 66.00 48.33 39.25 34.00 30.67 30.00 30.00 15 3.3315 25.00 13 13 14 26 30 35 4 1 48 56 16.67 14.29 10 31.60 33.09 35.00 12 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If there were 1,000 identical firms in this industry and total, or market, demand is as shown in the second table, equilibrium price will be Price $50 42 36 32 20 13 Quantity Demanded 3, 000 6,000 9,000 11,000 14,000 19,500

Explanation / Answer

There are 1,000 identical firms in this industry.

A purely competitive firm produces that level of output corresponding to which price equals marginal cost.

Following table shows the total market supplly schedule -

In a purely competitive market, equilibrium price is that price corresponding to which total market demand equals the total market supply.

Corresponding to price of $36, quantity demanded equals quantity supplied.

Thus,

The equilibrium price will be $36.

Price Quantity Demanded Quantity Supplied $50 3,000 11,000 42 6,000 10,000 36 9,000 9,000 32 11,000 8,000 20 14,000 6,000 13 19,500 5,000

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