Question

Suppose there are 100 firms each with a short run total cost of STC = q2 + q + 10. If market demand is given by QD = 1050 − 50P, how much will be produced in the market?

a. 300 b. 400 c. 500 d. 600

Suppose there are 100 firms each with a short run total cost of STC = q2 + q + 10. If market demand is given by QD = 1050 − 50P, how much will the individual firm produce?

a. 3 b. 4 c. 5 d. 6

Answer 1

Solution:

9).

STC = q² + q + 10

MC = derivative of STC wrt q

MC = 2q + 1

So, individual firm supply curve would be:

P = MC

P = 2q + 1

M + 50P market Supply curve is the horizontal summation of individual supply curve.

So, (P - 1) /2 = q

Market Supply: 100 * (P - 1) /2

Market Supply, Qs = 50(P - 1)

At equilibrium

Qd = Qs

50(P - 1) = 1050 - 50P

50P + 50P = 1050 + 50

100P = 1100

P = 11

and Q = 50(11 - 1)

Q = 500 Market Output

So, option c. is correct.

10).

Since, Market Output = 500

And # of firms = 100

Therefore, each firm's output = 500 / 100 = 5

Hence, option c. is correct.