Question

1. Let’s assume you’ve opened a firm in a perfectly competitive market to take advantage of an opportunity. Model your firm when you’ve just entered the market. Next, model it as it will inevitably end up. What has happened to your firm and investment? Is this a good thing, bad thing, or just a thing, and for whom? Using your analysis, explain why?

2. Use marginal analysis to show that you will maximize profits for your firm:

P	Q	TR	TC	MR	MC	AC	π
6	0		3	-	-	-
	1		4
	2		6
	3		9
	4		12
	5		16
	6		21
	7		27
	8		34
	9		44
	10		64

Answer 1

1. When you have entered in the perfectly competitive market thus it means that the firm will be making profit.

When the price will be greater than the minimum AVC then the firm will be making profit in the short run and when the price is equal to ATC then in the long run the firm will make zero economic profit.

I feel this question has to be answered on the text provided by your instructor. Kindly check his text and attempt to answer on the above guideline.

Refer the attached picture for the complete table

The MR = MC at Q = 7.

Thus, profit maximizing output is 7 units and profit is $ 15.