Question

In: Economics

Suppose in the short run a perfectly competitive firm has FC =$675 and Variable Cost...

Suppose in the short run a perfectly competitive firm has FC = $675 and Variable Cost = 3q² where q is the firm’s quantity of output. Therefore its marginal cost is MC = 6q. If the market price is P = $120, how much profit will this firm earn if it maximizes its profit?

Expert Solution

Total Cost = FC + TVC

TVC = 3q2

TC = 675 + 3q2

TR = P*q = 120q

Profit = TR - TC

Profit = 120q - 675 - 3q2

Derivative wrt q

d(Profit)/dq = 120 - 6q

120 - 6q = 0

q = 20

at q = 20, TR = 120*20 = 2400

TC = 675 + 3q2

= 675 + 1200

= 1875

Profit = 2400 - 1875

= $525

Rahul Sunny answered 2 years ago

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