Question

# A firm sells its product in a perfectly competitive market where other firms charge a price...

A firm sells its product in a perfectly competitive market where other firms charge a price of \$70 per unit. The firm’s total costs are C(Q) = 60 + 14Q + 2Q2.

a. How much output should the firm produce in the short run?

units:

b. What price should the firm charge in the short run?

\$ :

c. What are the firm’s short-run profits?

\$ :

A) A firm in perfectly competitive market is a price taker and maximizes profit by producing at the point where market price = MC.

Here, TC = 60 + 14Q + 2Q²

Or, MC = d(TC)/dQ = 14 + 4Q

Setting price = MC we get,

14 + 4Q = 70

Or, 4Q = 56

Or, Q = 14

Therefore, the firm should produce 14 units in short run.

B) A perfectly competitive firm is a price taker and charges the same price as other firms are charging. So, the short run price this firm will charge is \$70 per unit.

C) When Q= 14, Total revenue = \$(70*14) = \$980

And TC = 60 + (14*14) + 2(14*14) = \$(60+196+392) = \$648

Therefore, short run profit = TR - TC = \$(980 - 648) = \$332

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