Problem 08-01 The graph below summarizes the demand and costs for a firm that op

Question

Problem 08-01

The graph below summarizes the demand and costs for a firm that operates in a perfectly competitive market.
Instruction: Use the nearest whole numbers on the graph when calculating numerical responses below.

a. What level of output should this firm produce in the short run?

units


b. What price should this firm charge in the short run?

$


c. What is the firm

The graph below summarizes the demand and costs for a firm that operates in a perfectly competitive market.
Instruction: Use the nearest whole numbers on the graph when calculating numerical responses below.

Explanation / Answer

1) graph is not visible

2) in perfect competition

P = MC

MC = 14 + 4Q ( differentiate cost function)

so.................. 90 = 14 + 4Q

Q = 19

P = 90

profit = P * Q - cost

= 90 * 19 - ( 70 + 14* 19 + 2* 19^2)

= 652

d) Entry will occur until economic profits shrink to zero.

3) P = MC

MC = 4Q

so.....300 = 4Q

Q = 7

P = 300

Entry by other firms along with increased profits.

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