Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

196 PRICE AND OUTPUT UNDER PERFECT COMPETITION [CHAP. 8
(c)
Fig. 8-10
(d ) The equation of the demand curve for the perfectly competitive firm in this industry is given by P ¼ $4. That
is, the firm can sell any quantity at that price. Note that if only one firm increases the quantity of the commodity
produced and sold, the effect on the equilibrium market price will be imperceptible. If many or all firms
increase output, the market supply curve will shift down and to the right, giving a lower market equilibrium
price.
PRICE DETERMINATION IN THE MARKET PERIOD
8.6 If the market supply for a commodity is given by QS ¼ 50,000, (a) are we dealing with the market
period, the short run, or the long run? (b) If the market demand is given by QD ¼ 70,000 2 5000P
and P is expressed in dollars, what is the market equilibrium price (P)? (c) If the market demand function
changes to QD 0 ¼ 100,000 2 5000P, what is the new market equilibrium price (P 0 )? (d) If the
market demand function changes to QD 00 ¼ 60,000 2 5000P, what is the new equilibrium price
(P 00 )? (e) Draw a graph showing parts (b), (c), and (d) of this problem.
(a)
The quantity supplied to the market is fixed at 50,000 units per time period regardless of the price of the commodity.
That is, the market supply curve (and the supply curve of each producer) of the commodity has zero
price elasticity. Thus we are dealing with the very short run or market period.
(b)
QD ¼ QS
70,000 5000P ¼ 50,000
20,000 ¼ 5000P
P ¼ $4