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 $90 per unit. The firm’s total costs are C(Q) = 60 + 14Q + 2Q2.

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 firm’s short-run profits?

$


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

No firms will enter or exit at these profits. Entry will occur until economic profits shrink to zero. Exit will occur since these economic profits are too low.

Explanation / Answer

a) Set P=MC

90=60+14Q-4Q

90-60$= 10Q

30/10=Q

Q= 3$

b) $30

c) R= $90*3= $270

cost are C= 60+14(3)-2(3)2

C= 84

profits rae 270-84= $186

d) Entry will occur untill economic profits shrink to zero

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