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Determining Equilibrium Price Level Under Perfect Competition

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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?

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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
See Also This Related BrainMass Solution

Market Equilibruim and Profit Maximization under Perfect Competition

Market Equilibrium and Profit Maximization under Perfect Competition
The supply and demand equations for a hypothetical perfectly competitive market are given by
QS = -100 + 3P and QD = 500 - 2P.
a) Find the market equilibrium price algebraically.
b) In Excel, use the above equilibrium price and the cost data from the following table to determine the
firm's optimal output and its profit or loss.
c) For each of the following changes in market conditions, find the new market equilibrium and assess
the impact on the firm's output and profit. Determine whether the firm should operate or
shut down in the short run. Plot the solutions. (Treat each change-scenario independently.)
i) To each firm, government provides $40 subsidy per unit of output produced.
ii) The firm's AVC rises by $20 at each level of output due to an increase in material costs.
iii) Market demand increases, changing the original demand equation to: QD = 600 - 2P.

Total Total
Total fixed variable
Output cost cost
0 $100 $ 0
1 100 100
2 100 180
3 100 240
4 100 320
5 100 440
6 100 600
7 100 800
8 100 1040
9 100 1340
10 100 1800

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