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The short run variable costs below are for a firm in a perfectly competitive mar

ID: 1191401 • Letter: T

Question

The short run variable costs below are for a firm in a perfectly competitive market. All firms producing this good have the same costs. The demand is the market demand for the good this firm produces

FIRM                                                                          MARKET DEMAND

Q                     VC                                                      P         Q                     P         Q

1                      12                                                        10        500                 19        320

2                      21                                                        11        480                 20        300

3                      31                                                        12        460                 21        280

4                      43                                                        13        440                 22        260

5                      58                                                        14        420                 23        240

6                      78                                                        15        400                 24        220    

7                      105                                                     16        380                 25        200

8                      140                                                     17        360                 26        180

                                                                                    18        340                 27        160

Find the quantity this firm will produce in the short run if the price of output is $20. If $20 is the short run competitive equilibrium price, find the number of firms in the market.

Explanation / Answer

a) Total Cost = Fixed Cost + Variable Cost. Now if price is $20 then firm cannot produce more that Q=1 as when Q>1 then we see that VC>P which is not a viable option. So When P = 20 then Q = 1.

b) When P=20 then from table of market demand we see that Qunatity demanded is 300

Now no of firms needed = Total quantity demanded / quantity supplied pper firm = 300 / 1 =300

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