1. A firm operates in a perfectly competitive industry. Suppose it has a short r

Question

1. A firm operates in a perfectly competitive industry. Suppose it has a short run total cost function given by TC=10000+0.04q^2. If the market price is 56. What is the firm's profit-maximizing quantity?

2. Suppose an investment has three possible outcomes. There is a 25% chance that it brings a profit of 4,000,000. There is a 70% chance that it brings a profit of 1,000,000. There is a 5% chance that it brings a profit of 0. Suppose a decision makers utility function can be described by U(w)=w^0.5. What is this investments certainty equivalence for this decision maker?

Explanation / Answer

1) TC = 10000 + 0.04q2

    MC = 0.08q

       P = 56

The profit maximization condition is

MC = P

0.08q = 56

q = 56 / 0.08 = 700

Thus, the firm's profit-maximizing quantity is 700 units.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.