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. When 100 identical firms participate in this market, at what price will 15 000 units be supplied to 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. When 100 identical firms participate in this market, at what price will 15 000 units be supplied to this market?

Quizplus · Accepted Answer

At 15,000 units, the market demand intersects the market supply curve at a price of $1.50 per unit. Since there are 100 identical firms in the market, each firm's quantity supplied at that price equals 15,000 units divided by 100 firms, which is 150 units per firm. Looking at the marginal cost curve for the firm, we can see that the firm's marginal cost at 150 units is $1.00 per unit. Since a perfectly competitive firm always chooses to produce at the output level where P = MC, each firm will produce 150 units at a price of $1.50, which is equal to its marginal cost of production.