Consider a perfectly competitive market in the short run. Assume that market demand is
100 4 P QD
and market supply is P=Qs. Denoting firm level quantity by q, assume
TC=50+4q+2q2
so that MC=4+4q.
a) What is the market equilibrium price and quantity?
Set demand equal to supply and find 100-4Q=Q, so Q=20, P=20.
b) How many firms are in the industry in the short run?
Perfectly competitive firms will set P=MC, so 20=4+4q, so q=4. If each perfectly
competitive firm is producing 4, market output is 20, there will be 5 perfectly
competitive firms in the industry.