Demand Schedule in a Perfectly Competitive Market

CFA Level I Economics
#1
  1. [question removed by moderator] So I solve for Q = 8 and plug in to the demand schedule and get 81 but the correct answer is 66. Why is the coeffiecent of Q replaced by 8 instead of -1.5(8) ? Pg. 106 Volume 2 CFAI Books EOC Q5
#2

You must replace Q=8 in the supply curve that in this case is the marginal cost of firms (this only possible when we are in perfectly competitive markets as the question states), so

Ps = 2 + 8Q

Ps = 2 + 8(8)

Ps = 66

The question is asking “new companies will enter market…”, so use the supply curve, not the demand curve for such decision.

#3

Just to precise that Ps = 2 + 8Q is indeed the inverse supply curve.

The actual supply curve would be Qs = (Ps - 2)/8

#4

Thank you very much Harrogath, that makes much more sense. Clearly read the answer wrong when reviewing.

#5

Happy to help!