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In a perfectly competitive market, demand is given by Qd(P) = 60 - P. There exist 300 identical firms. Each firm's short run total cost function: STC(q) = 0.1 + 150q2; short run marginal cost function: SMC(q) = 300q; average variable cost function: AVC(q) = 150q. Show the short run equilibrium in this perfectly competitive market.
Step 1 profit maximization condition: P = 300q.
Step 2 derive market supply: qs(P) = P/300 and Qs(P) = 300(P/300) = P
Step 3 equilibrium condition: Qs(P) = Qd(P) ó P = 60 - P
P*= 30
q* = 30/300=.1
Q* = 30
Why profit max is P=300q and Can you explain why Step 2 qs(P)=P/300?
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