Question

MC(q)= 17+q, where price is $29.00. Illustrate graphically.

A. Find output

B. Calculate the producer surplus for this firm.

C. Where is the profit maximization point?

Answer 1

1. MC=MR=P

17+q=29

Output (q) = 12

2. Producer surplus is the difference between price received by sellers and the the minimum amount producers are willing to receive. This is given by the area of the triangle between the price and supply curve.

Producer Surplus= 1/2 × 12 × 12 =72

3. Profit maximizing point is where price which is given by the demand curve equals the marginal cost which is given by the supply curve. So the intersection MC curve and Price is the profit maximizing point.

Thus this point satisfies the profit maximizing condition Price=Marginal Revenue= Marginal Cost