7.A competitive firm participates in a market where market demand & supply are given byQD=85,000-5000PQs = 40,000+ 2500 PFind the market equilibrium price. Plot a graph of the demand curve facing the firm.Given that the marginal cost curve of the firm is given by the following:MC = 2q, calculate the profit maximizing quantity that the firm will produce.Assume that FC=0. Calculate the profit of the firm at this quantity.a.b.C.

Answered: A competitive firm participates in a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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7.
A competitive firm participates in a market where market demand & supply are given by
QD=85,000-5000P
Qs = 40,000+ 2500 P
Find the market equilibrium price. Plot a graph of the demand curve facing the firm.
Given that the marginal cost curve of the firm is given by the following:
MC = 2q, calculate the profit maximizing quantity that the firm will produce.
Assume that FC=0. Calculate the profit of the firm at this quantity.
a.
b.
C.

Expert Solution

Step 1

Market demand equation: $Q_{D} = 85, 000 - 5000 P$ .... (1)

Market supply equation: $Q_{s} = 40, 000 + 2500 P$ .... (2)

The firm is operating in a perfectly competitive market, therefore, the market forces determined the price and the firm is a price taker.

The market equilibrium price is determined by supply and demand forces and at this equilibrium price p*, the quantity demanded is equal to the quantity supplied

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