Question

In: Economics

Consider a firm with total costs represented by TC=16+Q^2 and a corresponding marginal cost of 2Q...

Consider a firm with total costs represented by TC=16+Q^2 and a corresponding marginal cost of 2Q (MC=2Q)

1. Graph the ATC and MC, be certain to label the lowest point of the ATC.

Consider that the firm faces a price of $12.

2. Find the optimal quantity

3. Graph and find the total cost, total revenue and any profit or loss at the optimal quantity

Solutions

Expert Solution

1. The ATC would be or or . MC is given to be . The graph is as below.

M is the minimum of ATC, where the MC curve intersects it.

2. The optimal quantity would be where the ATC is minimum, which would be where or or or or or . This is where the average total cost is minimum.

3. The total revenue would be . The graph is as below for different prices.

The profit is the difference between TR and TC. In this case, the mentioned profit is for price $15.

Rahul Sunny answered 2 years ago
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