Question

Use the following information to answer the next three questions. Consider a perfectly competitive market with identical firms with the following cost function: C(q)=0.1q2+1000

The market demand is QD=1000-p

30) The supply function for an individual firm in the market can be written: a) qs =0.2q B) qs=5p C) qs =10p D) p=20

31) Suppose there are 20 firms in the market. The short-run market supply is A) p=20 B) QS=100p C) QS=200p D) None of the above

32) The long-run equilibrium will consist of how many firms? A) 10 B)18 C) 20 D) 200

Answer 1

Use the following information to answer the next three questions. Consider a perfectly competitive market with identical firms with the following cost function: C(q)=0.1q2+1000. This makes the marginal cost function MC = 0.2q.

The market demand is QD=1000-p

30) The supply function for an individual firm in the market can be written as MC = P or P = 0.2q. This becomes qs = 5P. B) qs=5p

31) Suppose there are 20 firms in the market. The short-run market supply is 20qs = Qs = 20*5p or 100P. B) QS=100p

32) The long-run equilibrium will have a price of P = MC = AC. Here AC = 1000/q + 0.1q so that we have

0.2q = 1000/q + 0.1q

q = 100 and so MC = 0.2*100 = $20. When P = $20, Qd = 1000 - 20 = 980. This implies that number of firms = 980/100 = 9.8. A) 10