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Equilibrium Price & Output

Suppose the market demand data for the product are as follows:

Price Total Quantity Demanded
$26 17,000
32 15,000
38 13,500
41 12,000
46 10,500
56 9,500
66 8,000

What will be the equilibrium price? What will be the equilibrium output for the industry? For each firm? What will profit or loss be per unit? Per firm? Will this industry expand or contract in the long run?

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Solution Preview

Please see the attached file.

Remember for Profit maximization MR=MC. In perfect competition we can assume price to indicate Marginal Revenue. Also keep in mind that the firm will produce if the price is more than the average variable cost. Because of this reason, the quantity supplied for first two is 0, because the average variable cost is more than the price.

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Solution Summary

The solution determines the equilibrium price and also answers a lot of related questions for the scenarion given below.