The demand curve, In a perfectly competitive market, is as follows:
q_D = 210 – p
Assume that the market consists of identical firms. The supply curve of a single firm is given by
q_s^f = 15 + p for p >=30
    = 0 for 0<=p < 30
With free entry and exit of the firms, equilibrium market quantity will be?, equilibrium number of firms will be?

Four

The correct answer is Option 3: Four

We know, with free entry and exit; the market will be in equilibrium at a price which equals the minimum average cost of the firms.

Therefore, the equilibrium price is 30. At this price, market will supply that quantity which is equal to the market demand.

Therefore, from the demand curve, we get the equilibrium quantity as

qD =210 – p

= 210 – 30

= 180.

Single firm quantity supplied will be

q_s^f = 15 + p

    = 15 + 30 = 45.

So number of equilibrium firms will be = qD / qsf

                                                        = 180/45

                                                        = 4.