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| In a perfectly competitive market, the demand curve is as follows qD = 150 p for 0 ?p ? 150 = 0 for p > 150 The supply curve of a single firm is given by (Assume that the market consists of identical firms) qsf = 15 + p for p ? 25 = 0 for 0 ? p < 25 With free entry and exit of the firms, equilibrium quantity will be? |
150
125 130 135 |
| 125 |
| 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 25. 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 150 p = 150 25 = 125. |
