Question

16 A firm has total cost of TC(y)=y²+1 and marginal cost of MC(y)=2y. What is the firm's profit at price $8?

Group of answer choices

25

10

15

0

neither one is correct

Answer 1

Q16.

Option C is correct : Profit = 15

We are given,

Total Cost (TC) = y² + 1

Marginal Cost(MC) = 2y

Let’s assume the above cost functions are for a “Perfectly Competitive” firm that maximizes profits by equating the price to its marginal cost.

The profit maximizing condition: P = MC

At prices P = $8, the profit maximizing level of output is :

8 = 2y

y = 8/2

y = 4

Thus, the total revenue (TR) = P *y = 8*4 = 32

TC(y= 4) = y² + 1 = 4² + 1 = 16 + 1 = 17

Profits = TR – TC = 32 – 17 = 15

*All other options are incorrect as they do not fit into the above calculations