Consider a firm which sells its product in a perfectly competitive market where the market price...

Consider a firm which sells its product in a perfectly competitive market where the market price is $4.20 per unit. The firms in the market have identical cost structures and is described by the following equations:

TC = 40 + 0.1q2(squared) - 0.2q

ATC = 40/q + 0.1q- 0.2

MC = 0.2q - 0.2

AVC= 0.1q - 0.2

1.a) What quantity should the firm produce to maximize its profit?

1.b) What is the firm’s profit at its profit-maximizing level of output?

1.c) If the current market quantity is 2750, how many firms are there in the market?

Suppose consumers’ income decreases, and consumers view this good as a normal good. As a result, the new market price is $3.20.

5.a) Given the new market price of $3.20, the firm’s profit-maximizing level of output is ________.

6.) As a result of the market price change, the firm should expect its profit to ______ ( decrease | increase | not change) by $___________.

7.) Given the firm’s cost structure, the firm will earn an economic profit (profit greater than zero) if the market price is _________ (equal to | greater than | less than | not equal to) $________.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

A firm sells its product in a perfectly competitive market where other firms charge a price...

A firm sells its product in a perfectly competitive market where other firms charge a price of $120 per unit. The firm’s total costs are C(Q) = 50 + 12Q + 2Q2. a. How much output should the firm produce in the short run? b. What price should the firm charge in the short run? c. What are the firm's short-run profit? d. What adjustment should be anticipated in the long run? Exit will occur since these economic profits are...

a) Consider a firm that sells its output in a perfectly competitive product market, and hires...

a) Consider a firm that sells its output in a perfectly competitive product market, and hires labour in a perfectly competitive labour market. The value of the marginal product of labour (in dollars) is given by: VMPL = 30-2L Assuming that the firm is a profit maximizer and can hire labour at $W per unit, derive its labour demand function. b) Given that there are 10 identical firms (like the firm described is part (a)) in the industry, show...

A firm sells a product in a perfectly competitive market, at a price of $50. The...

A firm sells a product in a perfectly competitive market, at a price of $50. The firm has a fixed cost of $30. Fill in the following table and indicate the level of output that maximizes profit. How would the profit-maximizing choice of output change if the fixed cost increased from $40 to $60? More generally, explain how the level of fixed cost affects the choice of output Output Total Revenue Total Cost Profit Marginal Revenue Marginal Cost 0 1...

In a perfectly competitive market, if a firm raises the price of its product from the...

In a perfectly competitive market, if a firm raises the price of its product from the prevailing market price of $179 to $199, it will likely cause the firm to reach its shutdown point immediately. will cause the firm to recover some of its opportunity costs. would likely result in a substantial loss of sales to competitors. is a sure sign the firm is raising the given price in the market.

A perfectly competitive firm faces a market-determined price of $25 for its product.

A perfectly competitive firm faces a market-determined price of $25 for its product.(1) (2) (3) (4) (5) (6) (7)QuantityTotal costAverage total costMarginal costMarginal revenueProfit margin0 1000 100 2000 200 3300 300 4800 400 7000 500 9600a. The firm’s total costs are given in the schedule above. Fill in columns 3 and 4 for average total cost and marginal cost. b. Fill in columns 5 and 6 for marginal revenue and profit margin. c. How much output should the competitive firm...

A perfectly competitive firm faces a market-determined price of $30 for its product. Fill in columns...

A perfectly competitive firm faces a market-determined price of $30 for its product. Fill in columns and answer the question below. (1) (2) (3) (4) (5) (6) (7) Quantity Total cost Average total cost Marginal cost Marginal revenue Profit margin Total profit 0 $1,500 150 $4,000 300 $6,600 450 $9,600 600 $14,000 750 $19,200 The competitive firm should produce _____ units to maximize profit.

A firm operates in a perfectly competitive market where the market price is p=$200. The firm’s...

A firm operates in a perfectly competitive market where the market price is p=$200. The firm’s total cost of production is given by the following equation: TC(q) = 250 + 10q2 + 20q, where q is the quantity supplied. When this firm maximizes profit, what is the optimal quantity to produce in the short run and what will happen in the long run? a) q=0 (shut-down) both in the long run and in the short run b) q=9 in the...

1.Consider a firm that operates in a perfectly competitive market. The firm is producing at its...

1.Consider a firm that operates in a perfectly competitive market. The firm is producing at its profit maximizing output level. If this is true, then a. marginal revenue is greater than the market price. b. price must be equal to marginal cost. c. the firm must be earning a positive economic profit. d. average revenue is maximized. 2.In order to make the shut-down decision, a perfectly competitive firm compares a. price with average variable cost. b. price with average total cost....

Determine the best level of output for a perfectly competitive firm that sells its product at...

Determine the best level of output for a perfectly competitive firm that sells its product at P =$2.50and faces TC = .05Q3 - 1.2Q2 + 21Q + 10 Will the firm produce at this level of output? Why? Apply MR = MC rule to find loss-minimizing (it will be a loss) output. Check the use of the rule—does price cover average variable cost (AVC) at MR = MC? If not then the MR = MC rule is inappropriate and the firm should shut down.

In a perfectly competitive market, each firm produces at a quantity where price is set Group...

In a perfectly competitive market, each firm produces at a quantity where price is set Group of answer choices equal to average cost, both in the short run and in the long run. equal to marginal cost, in the short run. equal to average cost, in the long run. equal to marginal cost, both in the short run and in the long run.

Subjects