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| In a perfectly competitive market, the demand curve is as follows qD = 210 p Assume that the market consists of identical firms. The supply curve of a single firm is given by qsf = 15 + p for p ? 30 = 0 for 0 ? p < 30 With free entry and exit of the firms, equilibrium number of firms will be? |
Six Seven Four Five |
| 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 210 p = 210 30 = 180. Single firm quantity supplied will be 15 + p = 15 + 30 = 45. So number of equilibrium firms will be 180/45 = 4. |
