Suppose the demand and supply curve of commodity X in a perfectly competitive market are given by:
`q^(D)=700-p`
`q^(S)=500+3p " for "pge15`
`=0 " for " 0 leplt15`
Assume that the market consists of identical firms. Identify the reason behind the market supply of commodity X being zero at any price less than rupee 15. What will be the equilibrium price for this commodity? At equilibrium, what quantity of X will be produced?

Explanation

P = Rs.15 indicates that the minimum average cost of the firm must be Rs.15 and firms in perfectly competitive market do not produce and supply the commodity for any price less than minimum AC. Hence in the given question firms would not like to produce the good X at any price less than RS.15.
(i) Calculate of equilibrium price. Equilibrium price is determined at a point where market demand is equal to market supply i.e., `Q^(D)=Q^(S)`.
`700-P=500+3P`
`4P=200,P=Rs.50`
Hence equilibrium price is Rs.50.
Calculate of equilibrium quantity. Equilibrium quantity at equilibrium price Rs. = Rs.50
`{:(Q^(D)=700-P," "Q^(S)=500+3P),(" "=700-50" "=500+3(50)),(" = 650 units = 650 units"):}`
Hence equilibrium quantity is 650 units.