In a market for Ragi, the demand curve for ragi is as follows
qD = 100 p for 0 ?p ?100
= 0 for p > 100
Assuming that the market consists of identical firms, the supply curve of a single firm is
qsf = 15 + p for p ?20
= 0 for 0 ? p < 20
If free entry and exit of firms is there, the market equilibrium price will be?
Answer & explanation
Correct answer: option 1
The free entry and exit of firms would mean that the firms will never produce below minimum average cost because otherwise they will incur loss from production in which case they will exit the market. 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 Rs. 20