Consider the production function from question 1: q = L^1/5 K^4/5. Marginal cost is $5, P=(8−...

Consider the production function from question 1: q = L^1/5 K^4/5. Marginal cost is $5, P=(8− 1 2q), and FC = $1.

(a) What is II*? That is, what is the maximum profit?

(b) Should this company shut-down based on profit function, q*, maximum profit?

(c) Suppose that the profit amount found in (a) is the long-run equilibrium profit. Is this company in a perfectly competitive market?

Expert Solution

Rahul Sunny answered 2 years ago

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