A firm faces the demand curve, P = 80 - 3Q, and has the cost equation C = 200 +

Question

A firm faces the demand curve, P = 80 - 3Q, and has the cost equation C = 200 + 20Q.

a. find the optimal quantity and the price for the firm.

b. Now suppose that demand changes to P = 110 - 3Q. Find the new optimal price and quantity. Has there been an increase or decrease in demand. Explain.

Explanation / Answer

a) optimal price and quantity is perfect competition price and quantity. => P=MC MC = dC/dQ = d/dQ(200+20Q) =20 => 80-3q = 20 => 60=3q => q =20 P= 80-3*20 =20 b) if demand curve changes to P=110-3q then 110-3q = 20 => 90=3q => q =30 so there is increase in quantity demanded from 20 to 30.

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