Question

In a perfectly competitive market, market demand is QD = 380 – 2P and market supply is QS = 2P - 20. Each
firm has short-run MC = 5Q and ATC = 2.5Q + (100/Q) (ATC is at minimum when Q = 6.32).
4. How much output will each firm produce?

a.	180
b.	10
c.	20
d.	100

5. What is the profit/loss for each firm in the short-run?

a.	$-7, 000
b.	$900
c.	$2, 500
d.	$0

6. How many firms are there in the industry in the short-run?

a.	12
b.	5
c.	9
d.	20

7. What will the price be in long-run equilibrium?

a.	$31.62
b.	$100
c.	$6.32
d.	$48.85

8. How many firms will there be in long-run equilibrium?

a.	50.12
b.	28.89
c.	107.27
d.	180

Answer 1

The market is perfectly competitive with market demand QD = 380 – 2P and market supply is QS = 2P - 20.

Each firm has short-run MC = 5Q and ATC = 2.5Q + (100/Q) (ATC is at minimum when Q = 6.32).

4. Market price is

QD =QS

380 - 2P = 2P - 20

400 = 4P

P = 100 and Q = 180 units

Each firm produces

P = MC

5Q = 100

Q = 20 units

Option C

5. Profit = (P - ATC)*Q = (100 - (2.5*20 + 100/20))*20 = 900

Option B

6. Number of firms = market quantity/per firm quantity = 180/20 = 9 firms.

Option C

7. Long run price has P = AC = MC

2.5Q + 100/Q = 5Q

100/Q = 2.5Q

Q = 6.32 and P = 31.62

Option C

8. Number of firms = market quantity/ firm's quantity = (380 - 2*6.32)/6.32 = 58.12.

Option A

(The embedded answer is wrong because the correct number will be 58.12 and not 50.12)