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Steps to estimate the number of firms in the given case

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A market contains a group of identical price-taking firms. Each firm has a marginal cost curve SMC(Q)=2Q, where Q is the annual output of each firm. A study reveals that each firm will produce if the price exceeds $20 per unit and will shut down if the price is less than $20 per unit. The market demand curve for the industry is D(P)= 240-(P/2), where P is the market price. At the equilibrium market price, each firm produces 20 units. What is the equilibrium market price, and how many firms are in this industry?

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Solution depicts the steps to estimate the number of firms in the given case.

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Let us calculate the SMC at an output level of 20 ...

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Lokesh Jain, MSc
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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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