Graph A shows the market demand and supply in a perfectly competitive market.Graph B shows the cost curves of a representative profit-maximizing firm in that industry.

-Refer to the above graph to answer this question.If the market is in equilibrium,what quantity will the firm produce?

Question

Graph A shows the market demand and supply in a perfectly competitive market.Graph B shows the cost curves of a representative profit-maximizing firm in that industry.
 
-Refer to the above graph to answer this question.If the market is in equilibrium,what quantity will the firm produce?

Quizplus · Accepted Answer

In a perfectly competitive market, the equilibrium occurs where the market demand and supply curves intersect. From Graph A, the equilibrium quantity is 50. At this quantity, the representative firm's marginal cost is equal to the market price (which is given by the intersection of demand and supply curves) and hence, the firm would be producing at the quantity where MC=MR to maximize profit. From Graph B, we can see that this occurs at a quantity of 50. Therefore, the firm would produce 50 units in equilibrium.

Graph a Shows the Market Demand and Supply in a Perfectly