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# Calculating the equilibrium price/output in the given case

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A competitive firm's short-run cost information is shown in the table below.

Output Marginal Cost Average Variable Cost Average Total Cost
0
1 \$ 8.00 \$ 8.00 \$ 17.00
2 7.00 7.50 12.00
3 6.00 7.00 10.00
4 5.00 6.50 8.75
5 6.00 6.40 8.20
6 7.00 6.50 8.00
7 8.00 6.71 8.00
8 9.00 7.00 8.13
9 10.00 7.33 8.33
10 11.00 7.70 8.60

a. If the market price is \$5.25, how much will this firm produce? Enter in the second column of the table below. Repeat for the remaining prices shown in the table.
b. Fill in the next column to determine the market supply in this industry, assuming there are 2000 identical firms in the industry. Further suppose that the market demand schedule for this industry is given by the last column in the table.

Price Quantity Supplied, This Firm Quantity Supplied, 2000 Firms Quantity Demanded
\$ 5.25 20,000
\$ 6.25 18,000
\$ 7.25 16,000
\$ 8.25 14,000
\$ 9.25 12,000
\$ 10.25 10,000

c. What is the equilibrium quantity in this market?
d. What is the equilibrium price in this market?
e. What are the resulting output, revenue, cost, and profit of the typical firm?

https://brainmass.com/economics/general-equilibrium/calculating-the-equilibrium-price-output-in-the-given-case-501885

#### Solution Preview

a. If the market price is \$5.25, how much will this firm produce? Enter in the second column of the table below. Repeat for the remaining prices shown in the table.

A competitive firm sets its output level such that Marginal cost is less than or equal to market price. At a price of \$5.25, firm can choose to produce 4 units as marginal cost for 4th units is less than price of \$5.25. But AVC is more than price, firm will prefer to shut down to minimize the losses in the short run.

Similar is the case for price of \$6.25.
In case of price is \$7.25, firm will produce ...

#### Solution Summary

Solution describes the steps to calculate the output of the firm at various price levels. It also determines the equilibrium price and output of the market.

\$2.19

## Competitive Markets

Please refer attached file for graph.

The graph on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.

a. What is the marginal revenue that this perfectly competitive firm will earn on its 60th unit of output?
b. What level of output should this firm produce in order to maximize profit or minimize losses?
c. Given your answer to question (b) above, assume that ATC at that level of output is \$10. What are the firm's profits?
d. Now assume that the firm produces 100 units of output and at that level of output ATC = \$11. How many firms in total will there be in this market?
e. Finally, assume the firm produces 100 units of output and at that level of output its ATC are \$13 but its AVC are \$11. What should the firm do and why?

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