Question

(a) Suppose the total revenue (TR) and total cost (TC) curves of the perfectly competitive firm are given by the following set of equations: TR = 100Q and TC = Q² + 4Q + 5, where Q is the output. Derive the firm’s profit maximizing output and calculate the total and average profit earned by the firm at this level of output.

(b) How do you know that the equations above could not be referring to a monopoly?

Answer 1

b) Since only Total revenue and Total cost is given and we are to find the profit maximising oitput. And we know that MR=MC ( Mrginal Revenue = Marginal Cost. )

Second question is answered first because it is important for the first question.

a)

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Total Revenue is 100Q

So marginal revenue is 100.

Marginal cost is equal to marginal revenue is the profit maximisation condition for Monopoly .

So total revenue is =$4800 (Putting the value of Q in TR)

Total cost is= $ 2501(Putting the value of Q in TC)

Total profit = $2299 (Total Revenue - Total cost )

Average profit is = $47.89 (Total profit /Q)

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