Let's take a look at Invisible Hand Property 2 in action using a mathematical example. Suppose an industry is characterized by the following equations. We're going to assume that all individual firms are identical to make this problem a little simpler.

• Demand: =1002QD=1002P
• Individual firm's supply: =0.5+0.1qS=0.5+0.1P
• Market supply with n firms: ==0.5+0.1QS=nqS=0.5n+0.1nP
• Individual firm's average cost: =55+24.2AC=5qS5+24.2qS

c. The Elimination Principle says that profits will be eliminated in the long run, which means that AC = P. We will use that fact to figure out how many firms will be in this industry in the long run.

Using =AC=P, find qS, the number of units that each firm will make in the long run.

qS:

Then use qS to find P, the longrun price of output.

P: $

Now use P to find QD, the amount of output demanded by consumers in the long run.

QD:

Finally, use QD and qS to find n, the number of firms in the long run.

n: