Question

Market demand: Qᴰ =5400−100P Market supply: Qˢ =500P Total cost (each firm): TC(q)=200+q²/20 Assume that all firms are identical and that the market is characterized by perfect competition (even if the number of firms is small). Also assume we are in the short run. a) Find the equilibrium market price and quantity.

Answer 1

The equilibrium market price is $9, and the equilibrium quantity is 4500 units, found by setting the market demand function equal to the market supply function and solving for the price and quantity.

Step-by-step explanation:

To find the equilibrium market price and quantity in a market characterized by perfect competition, we set the market demand equal to the market supply.

The market demand function is given as QD = 5400 - 100P, and the market supply function is QS = 500P. At equilibrium, QD = QS. Plugging in the values, we get:

5400 - 100P = 500P

Comparing the constants from both sides, we add 100P to both sides to get:

5400 = 600P

Divide both sides by 600 to solve for P:

P = 5400 / 600

P = 9

Now, we plug this equilibrium price back into either the demand or supply equation to find the equilibrium quantity. Let's use the supply function:

QS = 500 * 9

Q = 4500 units

Therefore, the equilibrium price is $9, and the equilibrium quantity is 4500 units.