The supply curve of an individual firm

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Consider a competitive industry with many identical firms. The supply curve of an individual firm is given by S1(p) = 2p when p ≥ $2 and S1(p) = 0 when p < $2. Suppose that the market demand is given by D(p) = 12 − p.

(a) Let Sn(p) denote the supply curve when there are n firms operating in the market. On a graph with the quantity on the horizontal axis and the price on the vertical, draw S1(p), S2(p), S3(p) and D(p).

(b) Assume free entry and exit. How many firms there will be in equilibrium? What will be the equilibrium price?

Reference no: EM13974945

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