Three hundred paper mills compete in the paper market.The total cost of production (in dollars)for each mill is given by the formula TC = 1,000Q_mill + (Q_mill)²,where Q_mill indicates the mills annual production in thousands of tons.The marginal external cost of a mill's production (in dollars)is given by the formula MEC = 200 + 2Q_mill.Finally,annual market demand (in thousands of tons)is given by the formula Q^d = 200,000 - 100P.What is the competitive price?

Question

Quizplus · Accepted Answer

The competitive price is determined where marginal cost (MC) equals marginal revenue (MR). The marginal cost (MC) for each mill is derived from the total cost function: MC = d(TC)/dQ_mill = 1,000 + 2Q_mill. Setting MC equal to the market price (P) and solving for P using the demand equation Q^d = 200,000 - 100P, we find the competitive price is $1,400.

Three Hundred Paper Mills Compete in the Paper Market