In: Economics
Suppose that the market demand for expensive steak dinners is given by:
Q = 1,000−10P,
so that the marginal revenue is:
MR = 100−0.2Q,
where Q is the number of steak dinners per day and P is the price of a dinner. The marginal cost and average total cost are both constant and equal to $40 per dinner.
Suppose that there is only one firm in the market.
The quantity that the firm produces will be how many dinners?
The price set by the firm will be?
The firm's economic profit is?
The quantity that the firm produces will be how many dinners?
Firm chooses its output where MR equals MC.
MR=MC
100-0.2Q=40
100-40=0.2Q
60/0.2=Q
300=Q.
The price set by the firm will be?
Answer :
Q =300 put in QD function to get price.
300=1000-10p
10p=1000-300
P=700/10
P=70.
The firm's economic profit is?
Economic profit
=(Price-ATC) *quantity
=(70-40)*300
=9000