A firm sells its product in a perfectly competitive market where other firms cha

Question

A firm sells its product in a perfectly competitive market where other firms charge a price of $100 per unit. The firms total costs are C(Q) = 50 + 12Q + 2Q^2.

a. How much output should the firm produce in the short run?

units

b. What price should the firm charge in the short run? $ c. What are the firms short-run profits?

$

d. What adjustments should be anticipated in the long run?

-No firms will enter or exit at these profits.

or-Exit will occur since these economic profits are too low.

or-Entry will occur until economic profits shrink to zero.

Explanation / Answer

a. a. How much output should the firm produce in the short run?

C(Q) = 50 + 12Q + 2Q^2

MC = 12 +4Q

Revenue = 100Q

MR = 100

for profit maximiztaion

MR = MC

100 = 12 +4Q

Q = 7.33 or 8 units

b. P = $100

c.Profit = 100*8 -(50 + 12*8 + 2*8^2)= 526

d. or-Entry will occur until economic profits shrink to zero.

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