The following graph (A)represents the cost curves for a representative firm in a perfectly competitive market.The market demand is shown in graph (B):

-Refer to the above graph to answer this question.Suppose that there are a total of 100 firms in this industry all with identical costs.What will be the equilibrium market price and quantity?

Question

The following graph (A)represents the cost curves for a representative firm in a perfectly competitive market.The market demand is shown in graph (B):
 
-Refer to the above graph to answer this question.Suppose that there are a total of 100 firms in this industry all with identical costs.What will be the equilibrium market price and quantity?

Quizplus · Accepted Answer

In a perfectly competitive market, firms will produce where their marginal cost (MC) equals the market price (P), which occurs at the intersection of the market demand and market supply curves. From Graph A, we can see that the supply curve for each individual firm is the marginal cost (MC) curve above the minimum point of the average variable cost (AVC) curve. At the minimum point of the AVC curve, the MC curve intersects the average total cost (ATC) curve, which is the supply curve in the long-run.

Therefore, in the long-run equilibrium, each firm will produce at a quantity where P=MC=ATC. From Graph A, we can see that this occurs at a quantity of 30 and a price of $50. Thus, the industry equilibrium will occur at a total quantity of 100 x 30 = 3,000 units and a market price of $50. Therefore, the correct answer is C.

The Following Graph (A)represents the Cost Curves for a Representative