A market has two firms. Firm 1 supplies q = p - 10 for p ≥ 10 and not… | Economics CUET question

A market has two firms. Firm 1 supplies q = p - 10 for p ≥ 10 and nothing at lower prices; firm 2 supplies q = p - 20 for p ≥ 20 and nothing at lower prices. The market demand is q = 60 - p. What is the equilibrium price, and how much does firm 2 supply?

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Rs 30; firm 2 supplies 10 units

Market supply is the sum of the two firms’ supplies, and it changes form at Rs 20, where firm 2 starts. Equilibrium is where market supply equals market demand.

Given:

Firm 1: q = p − 10 for p ≥ 10

Firm 2: q = p − 20 for p ≥ 20

Market demand: q = 60 − p

Try p ≥ 20, where both firms supply:

\( (p - 10) + (p - 20) = 60 - p \)

\( 3p = 90 \)

\( p = 30 \)

Rs 30 is above 20, so the trial holds.

Firm 1 supplies 30 − 10 = 20 units

Firm 2 supplies 30 − 20 = 10 units

Demand = 60 − 30 = 30 units

Option (2) Rs 35; firm 2 supplies nothing — this uses firm 1 alone: p − 10 = 60 − p gives Rs 35. But at Rs 35 firm 2 also supplies, so supply would exceed demand there.

This question uses Theory of the Firm under Perfect Competition (market supply) and Market Equilibrium together.

NCERT (2026-27): “4.6 Market Supply Curve … When the market price is strictly below p₁, both firms choose not to produce any amount of the good; hence, market supply will also be zero for all such prices. For a market … price greater than or equal to p₁ but strictly less than p₂, only firm 1 will produce a positive amount of the good. Therefore, in this range, the market supply curve coincides with the supply curve of firm 1. For a market price greater than or equal to p₂, both firms will have positive output levels. For example, consider a situation wherein the market price assumes the value p₃ (observe that p3 exceeds p₂). Given p₃, firm 1 supplies q₃ units of output while firm 2 supplies q₄ units of output. So, the market supply at price p₃ is q₅, where q₅ = q₃ + q₄. …”

Market Equilibrium: “5.1 Equilibrium, Excess Demand, Excess Supply … Graphically, an equilibrium is a point where the market supply curve intersects the market demand curve because this is where the market demand equals market supply. …”