Question

Consider a competitive market with 50 identical firms. Suppose the market demand is given by the equation qd = 200 - 10p and the market supply is given by the equation qs = 10p. How many units should a firm in this market produce to maximize profit?

1) 1 unit
2) 2 units
3) 3 units
4) 4 units

Answer 1

In a competitive market with the given demand and supply equations, a firm should produce approximately 1.36 units to maximize profit. Since fractional unit production is typically not possible, the main answer is rounded down to 1 unit.

Step-by-step explanation:

To solve for the equilibrium in a competitive market and find out how many units should a firm produce to maximize profit, we need to set the market demand equal to market supply and solve for the price (P). The market demand equation is qd = 200 - 10p and the market supply equation is qs = 10p. However, in the reference information provided, the supply equation is Qs = 2 + 5P. Assuming we are to use the latter in our calculations, we can write:Now we solve for With 68 units being the total quantity supplied in the market by 50 identical firms, each firm would supply 68 units / 50 firms = 1.36 units per firm The answer suggests that technically a firm would produce approximately 1.36 units, but since we can’t have a fraction of a unit in most cases, it's most likely that firms will produce either 1 or 2 units. However, in a theoretical sense, 1.36 units (rounded down to 1 unit) is our main answer.In conclusion, a firm should produce 1 unit to maximize profit given the demand and supply equations within this competitive market scenario.