When market price is more than equilibrium price then what will be its impact on number of firms ?

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Solution

The situation where the market demand is more than the equilibrium price corresponds to the situation of excess supply. In this situation, as the market price is more than the equilibrium price, the demand falls short of the supply. As a result of this, the competition among the sellers will increase and the sellers will start reducing the price in order to sell more. Also, it may happen that the firms leave the market due to the reduced demand. Thus, in case the equilibrium price is less than the market price, the number of firms in the market may decline.

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