1. Suppose the market demand curve is given by P = 840 - .05Q or Q = 16,800 - 20P

a. Suppose there are 95 competitive firms in this market, each with mc = 12q,

so each firm produces where P = mc, or P = 12q, which can be re-written as q = 2P.

The summation of these 95 mc curves give us a market supply curve given by Q = 95q = 95(2P) = 190P. That can be rewritten as P = Q/190 (which is the (inverse) supply curve that we graph with P on the vertical axis).

(i) Find the competitive equilibrium for this market.

(a) What is the competitive market price? Pcomp =

(ii) What is the competitive market equilibrium quantity demanded and supplied? Qcomp=

(iii) Compute consumer surplus at the competitive equilibrium. Did you get $5,776,000?

(iv) Compute the producer surplus as the competitive equilibrium. Did you get $608,000?

(v) Compute total surplus at the competitive equilibrium (assuming that there are no

external costs or benefits).