TC=Q^3-6Q^2-8Q+110 a) If the market price for T-shirts is P=7, how many T-shirts

Question

TC=Q^3-6Q^2-8Q+110

a) If the market price for T-shirts is P=7, how many T-shirts should the firm produce to maximize profit?

b) If the firm is maximizing profit, what are the firm's costs and revenues? How much profit does it earn per year?

c) Clearly, the firm is earning negative profits! Should it shut down production? Why or why not?

D) Now, think about short rune ffects in a competitive industry with free entry. If import tariffs are lowered on goods from Bangladesh, what are the short run effects on marginal cost, output, and capital stock? What happens to the number of firms in the market? Draw separate diagrams for the market and for a representative firm.

E) In the long run, what is the full impact (prices, quanity produced by representative firm, quantity produced by the market, etc.) of lower tarrifs? Draw separate diagrams for the market and for a representaitve firm.

Explanation / Answer

a) profit at P=MC

here MC =dC/dQ = 3Q^2-12Q-8

=> 7=3Q^2-12Q-8

=> 3Q^2-12Q-15 =0

=> Q =5 ,-1

so Q =5

hence he should produce 5 units for profit maximisation

b) Total cost = 5^3-6*5^2-8*5+110

=$45

revenue =P*Q =7*5 =$35

profit per year =35-45

= -$10

negative sign indicates loss

c) As firm is getting negative profits , he has to wait for long run, in future years also he is getting negative profits, then he should shut down firm

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