Please help me in solving these 6 questions A firm in perfect competition has th

Question

Please help me in solving these 6 questions

A firm in perfect competition has the cost functions, MC = 5 + 0.02Q and AVC = 5 + 0.01Q. The market price is Dollar 20. The firm produces 750 units. Is it maximizing profit? Why or why not? A monopoly faces the demand P = 280 - 0.005Q with MR = 280 - 0.01Q. MC is stable at Dollar 100. Its price and output levels are Q = 18,000 and P = Dollar 190. Is it maximizing profit? Why or why not? A firm in monopolistic competition, in the long-run, is producing where MC = MR and ATC = P. However, it is producing to the left of the lowest point on its LAC curve. Is this best it can do? Why or why not? Firms A and B sell spring water which costs nothing to produce. The market demand is Q = 20 - P. Given that firm A produces 10 units, firm B produces 5 units. Is firm B maximizing its profit? Why or why not? Firms A and B operate a cartel. Demand is P = 10,000 - 10Q, so MR = 10,000 - 20Q. MC_A = 25Q_A and MC_B = 6.25Q_B, so sigma MC = 5Q. Firm A produces 320 units. Is the cartel maximizing its profit? Why or why not? Carpet Magic, Inc., provides in-the-home carpet cleaning services to residential customers in the Toronta area. Its price is Dollar 40.50 per room, marginal costs are Dollar 8.10 per unit for labour and materials, and the price elasticity of demand is -1.25. Does it have the optimal markup on price? Why or why not?

Explanation / Answer

1. Yes. Because at output level 750, MR = MC. MR = 20 and MC = 5 + 0.02Q = 5 + 0.02(750) = 20.

2. Yes. Because at output level 18,000, MR = MC. MC = 100 and MR = 280 - 0.01Q = 280 - 0.01(18000) = 100.

3. No. it can reduce cost by increasing production level.

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