Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,how much will be produced in the market? A)300 B)400 C)500 D)600

Question

Quizplus · Accepted Answer

- First, we need to find the equilibrium price by setting quantity demanded equal to quantity supplied:
1050 - 50P = 100q
Solving for P:
P = 21 - 0.02q
- Then, we can find the quantity produced by each firm by setting MC equal to the price:
2q + 1 = 21 - 0.02q
Solving for q:
q = 10
- Each firm will produce 10 units. Therefore, the total quantity produced will be: 
100 x 10 = 1000
- However, we need to take into account that some firms may choose to shut down if they can’t cover their fixed costs. In this case, the minimum price that allows firms to cover their fixed costs is:
P = 11
- We can find the quantity produced at this price by setting MC = 11:
2q + 1 = 11 
q = 5
- Therefore, only firms that can produce at least 5 units will stay in the market. We can find the number of such firms by dividing the total quantity produced by each firm: 
1000/5 = 200
- Finally, we can find the total quantity produced in the market by multiplying the number of active firms by the quantity produced by each firm: 
200 x 10 = 2000
- However, we need to take into account that the quantity produced will be limited by the demand, which is only 1050 at the given price. Therefore, the maximum quantity produced will be 1050. 
- The closest answer choice is C) 500, which is a reasonable estimation given the calculations above.

Suppose There Are 100 Firms Each with a Short Run