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Finding optimum price and output levels

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Given the following equations:

Qd=-1000P+Income+11000
TC=(1/70)q^2-(25/35)q+100
MC=(1/35)q-(25/35)
Number of firms =85

Assume Income =11000.
i.What is the market supply equation?
ii.What is the market equilibrium price ?
iii.What is the market equilibrium quantity?
iv.What is the profit maximizing output (PMO) level?
v.What is the average profit and total profit at this PMO level?

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Solution Summary

The solution describes the steps to find out equilibrium price , equilibrium quantity, profit maximizing output level, average and total profit at PMO level in case of perfectly competitive market.

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Solution:

1. What is the market supply equation?

A perfectly competitive firm sets its output such that MC=P
P=MC =(1/35)*q-(25/35)
P=(1/35)*q-(25/35)
35P=q-25
q=35P+25

There are 85 similar firms in the market. So, Market supply will be given by
Qs=85q=85*(35P+25)=2975P+2125
Qs=2975P+2125

2. What ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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