# Finding optimum price and output levels

Perfect Competition

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 Preview

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 ...

#### 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.