Suppose there are 1000 identical wheat farmers. For each, TC = 10 + q2. Market demand is Q = 600,000 – 100p. Derive the short-run equilibrium Q, q, and p. Does the typical firm earn a short-run profit?
What will be an ideal response?
The firm's supply is q = 0.5p; market supply is Q = 500p. Market equilibrium can be found as 500p = 600,000 – 100p, or 600p = 600,000, so p = 1,000 and Q = 500,000. q = 0.5p = 500.
Profit = (500 ∗ 1,000 ) - (10 + 250,000 ) = 249,990. Each firm earns a profit.
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a. too high
b. insufficient
c. elastic
d. unit elastic