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) $________.

Expert Solution

Rahul Sunny answered 1 year ago

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