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Determining Equilibrium Price Level Under Perfect Competition

In 2008, the box industry was perfectly competitive. The lowest point on the long-run average cost curve of each of the identical box producers was $4, and this minimum point occurred at an output of 1,000 boxes per month. THe market demand curve for boxes was

Qd = 140,000 - 10,000P

where P was the price box (in dollars per box0 and Qd was the quantity of boxes demanded per month. The market supply curve for boxes was

Qs = 80,000 + 5,000P

where Qs was the quantity of boxes supplied per month.

A) What was the equilibrium price of a box? Is this the long-run equilibrium price?

B) How many firms are in this industry when it is in long-run equilibrium?

Solution Preview

A. What was the equilibrium price of a box? Is this the long-run equalilibrium price?

For equilibrium, Qd=Qs
140000-10000P=80000+5000P
140000-80000 ...

Solution Summary

This solution explains the steps to determine long-run equilibrium price. It also determines number of firms in the long run. The solution provides brief, step-by-step calculations for each of the problems.

$2.19