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PerfectCompetition - An Example of Perfect Competition This...

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An Example of Perfect Competition This example illustrates how a perfectly competive market achieves an equilibrium. The data to be manipulated are on the Market Data sheet. Changing these alters the diagrams on this sheet. Input cells are outlined in red. In equilibrium an additional firm should result in all firms making losses. You should play around with different parameter values to see how this works. 0 6.4 12.8 19.2 25.6 32 38.4 44.8 51.2 57.6 64 0 10 20 30 40 50 60 Firm's Equilibrium Average Cost Marginal Cost Market Price Output Cost 0 10 20 30 40 50 60 70 0 5 10 15 20 25 Industry Equilibrium Demand Supply Output Price ($)
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An Example of Perfect Competition The Market Demand Function has the Form P = A - B.Q A = 20 B= 0.25 The Total Cost Curve for Each Firm has the Form TC(q) = F + C.q + D.q^2 F= 30 C= 2 D= 0.5 Minimum Average Cost occurs at Output 7.75 Minimum Average Cost: $9.75 Number of Firms (N) 5 Equilibrium Number of Firms 5 Quantity Demand Supply 0 30 2 20 2 10 1.6 34.48 21.55000 3.6 19.6 2.32 10 3.2 41.52 12.975 5.2 19.2 2.64 10 4.8 51.12 10.65 6.8 18.8 2.96 10 6.4 63.28 9.8875 8.4 18.4 3.28 10 8 78 9.75 10 18 3.6 10 9.6 95.28 9.925 11.6 17.6 3.92 10 11.2 115.12 10.278571 13.2 17.2 4.24 10 12.8 137.52 10.74375 14.8 16.8 4.56 10 14.4 162.48 11.283333 16.4 16.4 4.88 10 16 190 11.875 18 16 5.2 10 17.6 220.08 12.504545 19.6 15.6 5.52 10 19.2 252.72
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