Let's take a look at Invisible Hand Property 2 in action using a mathematical example. Suppose an industry is characterized by the following equations. We're going to assume that all individual firms are identical to make this problem a little simpler.

• Demand: =1002QD=1002P
• Individual firm's supply: =0.5+0.1qS=0.5+0.1P
• Market supply with n firms: ==0.5+0.1QS=nqS=0.5n+0.1nP
• Individual firm's average cost: =55+24.2AC=5qS5+24.2qS

b. Suppose 35 firms are in this industry. What is the equation for market supply?

Q_S =

What are the equilibrium price and quantity?

Equilibrium price: $

Equilibrium quantity:

How many units of output is each firm producing? At this level of production, what is the average cost that a firm faces?

Individual firm's quantity:

Firm's average cost: $

How much profit is each firm earning?

Individual firm profit: $

According to the elimination principle, what should occur in this industry over time?

The number of firms in the industry

will fall as firms leave the industry.

will rise as firms enter the industry.

will remain the same.