Question

If a representative with total cost given by TC = 64 + 6q + q^2 operates in a competitive industry where the market demand is given by QD = 2,000 - 10P, the long-run equilibrium output of the representative firm (i,e q) will be:

Answer 1

Answer 6

In order to maximize profit a competitive firm produces that quantity at which P = MC where P = price and MC = Marginal Cost So, we want P = MC ----------------------(1)

Formula :

MC= d(TC)/dq = 6 + 2q

In the long run each competitive firm earns 0 profit because if they started earning positive profit then new firm will enters which results in increase in market supply and thus will shift market supply curve to the right till the point comes we have P = ATC

Profit = 0 means that we have P = ATC --------------(2)

ATC = TC/Q = 64/q + 6 + q

From (1) and (2) we get :

P = MC and P = ATC => MC = ATC => 6 + 2q = 64/q + 6 + q

=> q = 8

Hence, In the long run this firm will produce 8 units