The market demand curve for commodity X is `q^(D)=700-p`. Now, let us allow for free entry and exit of the firms producing commodity X. Also assume the market consists of identical firms producing commodity X. Let the supply curve of a single firm be explained as:
`q_(t)^(S)=8+3p " for "pge20`
`=0 " for "0le p lt 20`
(a) What is the significance of p = 20?
(b) Calculate the equilibrium quantity and number of firms at the equilibrium price of rupee 20.

Explanation

Significance of P = 20 indicates that the minimum average cost of the firm must be Rs.20 and firms in perfectly competitive market do not produce and supply the commodity for any price less than the minimum AC. Hence in the given question firms would not like to produce the good X at any price less than Rs.20.
(ii) Calculation of equilibrium quantity. It can be calculated by putting equilibrium price in demand fucntion
`Q^(D)=700-P=700-20=680"units"`
Calculation of number of firms
`"Number of terms"=("Equilibrium quantity")/("Quantity supplied by each firm")`
Equilibrium quantity = 680 units
Quiantity supplied by a firm =`Q_(f)^(S)=8+3P=8+3(20)=68"units"`
Hence no. of firms`=(680)/(68)=10` firms.