The following graph shows the market demand and average cost curve for electricity (in millions of kilowatts)in an urban centre:

-Refer to the above graph to answer this question.Suppose that the price is $3,and the market is served by two competing firms,each with average costs as shown in the graph and each having 50% of the market.What will be the quantity produced by each firm?
A)50.
B)55.
C)75.
D)100.
E)110.

Question

The following graph shows the market demand and average cost curve for electricity (in millions of kilowatts)in an urban centre:
 
-Refer to the above graph to answer this question.Suppose that the price is $3,and the market is served by two competing firms,each with average costs as shown in the graph and each having 50% of the market.What will be the quantity produced by each firm?
A)50. 
B)55. 
C)75. 
D)100. 
E)110.

Quizplus · Accepted Answer

At a price of $3, each firm will produce at the quantity where its marginal cost (MC) equals the price, as this is the profit-maximizing quantity. Without a graph, we assume standard economic models where firms produce where P=MC. If the market is split evenly between the two firms, and assuming the MC curves are similar for both firms, each firm would produce the quantity that corresponds to the $3 price point on their MC curve. Given the options and the typical behavior of firms in competitive markets, the most plausible answer is 50 units each, assuming this quantity aligns with a price of $3 on their MC curves.

The Following Graph Shows the Market Demand and Average Cost