Question

Suppose corn producers are in a perfectly competitive industry where all the firms are identicj with identical cost curves. In this industry the market price for a bushel of corn is $400. Suppose that a representative firm’s total cost is given by the equation TC=500 + q2 + 200q where q is the quantity of output produced by an individual firm. The firms MC curve equation based upon its TC curve equation is MC =2q + 200. Given this information and your answer in part (a), what is the firms profit maximizing level of productivity ion, total revenue, total cost and profit at this market equilibrium?

The profit maximizing output for an individual firm will be ____________ and the profit for an individual firm will be _________________

Answer 1

In a perfectly competitive market, the profit-maximizing output could be found at point where (Price (P) = MC).

Given, MC = 2q + 200

Price (P) = $400

P = MC

2q + 200 = 400

2q = 200

q = 200 / 2

    = 100

Answer: The profit-maximizing output is 100 units.

Total revenue (TR) = Price × Output

                                = $400 × 100

                                = $40,000 (Answer)

Total cost (TC) = 500 + q^2 + 200q

                        = 500 + 100^2 + 200 × 100

                        = 500 + 10,000 + 20,000

                        = $30,500 (Answer)

Profit = TR – TC

            = 40,000 – 30,500

            = $9,500 (Answer)