Suppose the marginal cost of television sets is constant at $100. The annual demand for television sets is given by Q = 200,000 – 500 P, where Q is the quantity sold per year and P is the price of television sets.
a. Graph out the supply and demand curves in this market. (Recall that the supply curve is the same as the marginal cost curve.)
b. If television sets are sold in a perfectly competitive market, how many would be sold, and at what price?
c. Under what circumstances would the market equilibrium be efficient?