The market demand curve for corn market is given by PDcorn

The market demand curve for corn market is given by PDcorn = 40 – 0.01Qcorn and the market supply curve for corn is given by PScorn = 20 + 0.01 Qcorn. The market for corn is perfectly competitive. If a firm producing corn has the marginal cost curve given by mc=10+10q and the firm has no fixed costs, how much will the firm produce?

A. 2

B. 30

C. 1000

D. 125

E. We can’t tell

Solution

Market Demand curve is: P = 40 - 0.01Q

Market supply curve: P = 20 + 0.01

Market equilibrium is when Market demand equals market supply:

40 - 0.01Q = 20 + 0.01Q

0.02Q = 20

Q = 20 / 0.02 = 1,000 [Industry output]

P = 40 - 0.01Q = 40 - (0.01 x 1,000) = 40 - 10 = 30

A perfectly competitive firm is price taker, therefore his relevant price is P = 30.

A perfectly competitive firm maximizes profit by equating P (market price) with MC:

30 = 10 + 10q

10q = 20

q = 2 [Firm output]

Correct option (A)