Question

Figure 14-7 In the figure, panel (a) depicts the linear marginal cost of a firm in a competitive market and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Price Price Supply 2.00 1.00! 100 Quantity 200 Quantity Firm Q, Q Market Refer to Figure 14-7. If at a market price of $2.50, 62,500 units of output are supplied to this market. How many identical firms are participating in this market? 075 O 100 o oo

Answer 1

Answer

The individual supply curve is the MC

The supply curve is a form of

P=a+bQ

b=slope

Slope =change in price /change in quantity = (2-1)/ (200-100) =0.01

Now the function is:

P=a+0.01Q

At point (1,100)

1=a+0.01*100

a=1-1=0

Then the function is the form of

P=0.01Q

Converting to the general form

P=0.01Q

0.01Q=P

Q=100P

Now

P=2.5

Q=100*2.5=250 units

One firm will supply 250 units

Number of firms =total supply /individual firm supply

=62500/250

=250

There should be 250 firms

Option 3