Question

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?

$ :

Answer 1

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