2. (a) Consider a perfectly competitive firm with the following total cost function in the short run:
<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
STC = 100 + 100Q+ 5Q^2 + (1/3)Q^3
Given the market price of its product is P=$300 per unit, determine its profit-maximizing output and profit for the short run.
(b) Now suppose its long-run total cost is:
LTC= 54Q - 2.4Q^2 + 0.03Q^3
Indicate the firmââ¬â¢s long-run price, quantity sold, and profit, assuming the industry is in long-run equilibrium.
2. (a) Consider a perfectly competitive firm with the following total cost function in the short run:
<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
STC = 100 + 100Q+ 5Q^2 + (1/3)Q^3
Given the market price of its product is P=$300 per unit, determine its profit-maximizing output and profit for the short run.
(b) Now suppose its long-run total cost is:
LTC= 54Q - 2.4Q^2 + 0.03Q^3
Indicate the firmââ¬â¢s long-run price, quantity sold, and profit, assuming the industry is in long-run equilibrium.
Related textbook solutions
Related questions
Assume that a firm in a perfectly competitive market can sell its product for $35 (ie price per unit of output). Furthermore, it faces the following costs:
| Output (Q) | Total Cost |
| 0 | 25 |
| 1 | 50 |
| 2 | 100 |
| 3 | 120 |
| 4 | 155 |
| 5 | 190 |
| 6 | 250 |
| 7 | 390 |
a) Calculate Total revenue (TR), Marginal Cost (MC), Fixed Cost (FC), Variable cost (VC), and Average Cost (AC).
b) What is the profit-maximizing output level?
c) Is this firm is making a profit or loss at the profit-maximizing output level? Explain.
d) Do you think the firm will continue its production in the short run?
e) What will be the long-run price in this market?
