Question

In a perfectly competitive market: the market price is 24 Marginal cost (MC) = 2(Q) + 8 average total cost at equilibrium is 18, and average variable cost at equilibrium is 10 Part 1: The profit maximizing price is     Part 2: The profit maximizing quantity is      Part 3: Total revenue is     Part 4: Total cost is     Part 5: Average fixed cost is     Part 6: Total fixed cost is     Part 7: Total profit/loss is     Part 8: Marginal revenue is

Part 9: At this market price, would firms 1. Enter the industry 2. leave the industry 3. There is no incentive to enter or leave the industry. (assume all firms have the same cost structure)

Part 10: At the market price, could this be a long run equilibrium price? (if yes=1, no=2) (assume all firms have the same cost structure)

Answer 1

1.

Price:$24

Explanation : firm are price taker. So they maximise its profit where MR equals MC. And in perfect competition MR equals price.

2.

8 unit.

Explanation :

MR=MC

24=2Q+8

24-8=2Q

16=2Q

8=Q

3.

192

Explanation :

TR =Q *P

=8*24

=192.

4.

Total cost =ATC *Q

=18*8

=144.

5.

AFC=ATC - AVC

=18-10

=8

6.

TFC=AFC*Q

=8*8

=64.

7.

Total profit = (Price - ATC) *Q

=(24-18)*8

=48.

8.

24

Explanation : in perfect competition price is equals to MR.

9.

1.enter the industry.

Explanation : becouse firm is earning positive economic profit.

10.

No

Explanation : becouse more firm will enter the market so market price will be decrease.