Graph 14-7
In this graph, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Use the graph to answer the following question(s).
-Refer to Graph 14-7. If at a market price of $1.75, 52 500 units of output are supplied to this market, how many identical firms are participating in this market?

Question

Graph 14-7
  In this graph, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Use the graph to answer the following question(s).
-Refer to Graph 14-7. If at a market price of $1.75, 52 500 units of output are supplied to this market, how many identical firms are participating in this market?

Quizplus · Accepted Answer

At a market price of $1.75, the market supply curve intersects with the horizontal axis (quantity axis) at 52,500 units. Then, we can trace a line upward from this point on the horizontal axis until it hits the linear marginal cost curve. From there, we can trace the line leftward until it hits the vertical axis (price axis). We see that the market price corresponding to 52,500 units of output is $1.75. Therefore, each firm in the market produces 175 units of output (52,500/300), as their marginal cost is $1. From this we can deduce that there are 300 identical firms participating in the market.