Question

Firm X, operating in a perfectly competitive market, can sell as much or as little as...

Firm X, operating in a perfectly competitive market, can sell as much or as little as it wants at the market price. The firm’s cost function is C(Q) = 600 + 8Q + 6Q2.

  1. At a market price of $140 per unit, what is the firm’s profit maximizing quantity? What is their profit?

  2. At a market price of $80 per unit, will the firm stay in business in the short-run? If so, what quantity would they produce and what would be their profit?

Homework Answers

Answer #1

The firm’s cost function is C(Q) = 600 + 8Q + 6Q2, thus MC= 8+12Q

When market price is $140, MR=AR=P= 140, firm maximize profit at the point where MC=MR

Thus, 8+12Q=140

Q= 11

TC= 600 + 8Q + 6Q2= 600+8*11+6*(11*11) = 1414

TR = Q*P = 140*11 = 1540

Profit = TR-TC = 1540-1414= 126.

Firm’s profit maximizing quantity is 11 and their profit is $126 when price is $140

When price is $80, MR=AR=P=80, thus

8+12Q= 80

Q= 6

TC= 600+8*6+6*(6*6)= 864 ; TVC= 8Q+6Q2 = 8*6+6*(6*6) = 264 ; AVC=TVC/Q = 264/6 = 44

TR = 6*80 = 480.

Profit = 480-864= -384 (loss).

Here the firm is not making enough revenue to cover its total cost and the firm is incurring losses. But the price of the good is greater than AVC and hence they are able to cover their variable cost of production. Hence the firm must stay in the business in the short run.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A firm sells its product in a perfectly competitive market where firms charge a price of...
A firm sells its product in a perfectly competitive market where firms charge a price of $80 per unit. The firm’s cost are: Total Costs: C(Q) = 40 – 8Q + 2Qsquare Marginal Costs: MC(Q) = – 8 + 4Q a) How much should the firm produce in the short run (to maximize profits)? b) What are the firm’s short run profits or losses? (Profits = Revenue – Total Costs) c) What changes can be anticipated in this industry in...
The total cost function for a firm in a perfectly competitive market is TC = 350...
The total cost function for a firm in a perfectly competitive market is TC = 350 + 15q + 5q2. At its profit maximizing quantity in the short-run, each firm is making a loss but chooses to stay open. Which of the following is/are necessarily true at the profit maximizing quantity? MR = 15 + 5q P>15 AR > 350/q + 15 + 5q Both A and B are true. Both B and C are true. All of the above...
Firm A is operating in a perfectly competitive market The market price for its product is...
Firm A is operating in a perfectly competitive market The market price for its product is $45 Its total cost function is: TC(Q)=2900+19Q+0.01Q2 Its marginal cost function is MC(Q)=19+0.02Q Calculate PROFITS at the profit maximizing quantity and price
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? $ :
Draw a graph of a perfectly competitive firm in the short run that is earning losses...
Draw a graph of a perfectly competitive firm in the short run that is earning losses but will stay in business in the short run. Label everything carefully including the axes, the profit maximizing quantity, price, and economic losses. Explain carefully why the firm will choose to stay in business in the short run. Label the price at which the firm is indifferent between shutting down and staying open, Psd, on the graph.
A firm sells its product in a perfectly competitive market where other firms sell an identical...
A firm sells its product in a perfectly competitive market where other firms sell an identical product at a price of $120 per unit. The firm's total cost is c(q) = 2500 + q2. (a) How much output should the firm produce in the short-run? (b) If all the other competitors in the market have the same cost function, what would you expect to happen to the price of the output in the long-run? Explain your answer clearly and, if...
10. The total costs of a firm operating in perfectly competitive markets are described by the...
10. The total costs of a firm operating in perfectly competitive markets are described by the function C(y) = y2+15y+40, where y denotes the quantity (units) of output Y produced by the firm. The market price per unit of output is 25 euros. Find the profit maximizing output level, the firms profits (or loss) and explain briefly (in max 1 or 2 sentences) whether it would be better for this firm to continue producing or to shut down its production...
You are working for a firm that is operating in a perfectly competitive market, and exhibits...
You are working for a firm that is operating in a perfectly competitive market, and exhibits a cost function of TC = 4000 +500 Q – 2 Q2 + 0.02Q3. If the market equilibrium price is $515, should you operate? If so, what is the Profit? If the market price is $455, should you operate? Why? Finally, what is the price that would have you shutdown, layoff labor, and leave the plant idle in the short-run?
4.2 2. Bucky is a firm that makes rocking horses, which is a perfectly competitive market....
4.2 2. Bucky is a firm that makes rocking horses, which is a perfectly competitive market. Bucky’s cost function is: C(q) = 12q2+40q+2450. (a) Determine the firm’s short-run supply curve. (b) The market price for rocking horses is p = 140. What is the firm’s optimal level of output? (c) What are firm profits from part b)? (d) How would an increase in the rental rate affect your answer to part c)? (e) What is the long-run market price and...
A local scones shop operating in a perfectly competitive market has a general production function depicted...
A local scones shop operating in a perfectly competitive market has a general production function depicted as: Q = √(KL), where Q = output per week (bags of scones); K = capital, which is fixed at 100 in the short-run; L = labor hours per week. (a) How much would the firm produce to maximize profits if the price of scones is $20 per bag? How many hours of labor will the company hire per week? What will the firm’s...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT