Question

10. Suppose a perfectly competitive firm has the following total cost function: TC = 10 + (0.1 ∗ q^2). The market demand is given by Q = 100 – 10p. If p = 10, the firm's profits will be

A) 240.

B) 250.

C) 260.

D) -10 because the firm will shut down.

Answer #1

**OPTION D i.e., -10 as the firm will shut
down**

**SOLUTION****:**

**Given,**

**Q = 100 - 10p**

=> **Q = 100 - (10 x 10) [given p= 10]**

**=> Q = 0**

**Also given,**

**TC = 10 + (0.1 * Q^2)**

**=> TC = 10 + (0.1 * 0^2)**

**=> TC = 10 + 0**

**=> TC = 10**

**The market demand is also denoted as price in perfect
competition.**

**So profit of firm**

**= Price/demand - Total cost**

**= 0 - 10**

**= -10**

**Hence, the firm's profit is -10.**

**Also, the firm will shut down as there is no demand for
its products in the market**

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