Firm z, operating in a perfectly competitive market, can sell as much or as little as it wants of a good at a price of $16 per unit. Its cost function is C = 50 + 4Q +2Q^2. The associated marginal cost is MC = 4 +4Q, and the point of a minimum average cost is Qmin = 5.
a. Determine the firm's profit-maximizing level of output. Compute its profit.
b. The industry demand curve is Q = 200 -5P. What is the total market demand at the current $16 price? If all firms in the industry have cost structures identical to that of firm Z, how many firms will supply the market?
c. The outcomes in parts a and b cannot persist in the long run. Explain why. Find the market's price, total output, number of firms, and output per firm in the long run.
d. Comparing the short-run and long-run results explain the changes in the price and in the number of firms.
Firm z, operating in a perfectly competitive market, can sell as much or as little as it wants of a good at a price of $16 per unit. Its cost function is C = 50 + 4Q +2Q^2. The associated marginal cost is MC = 4 +4Q, and the point of a minimum average cost is Qmin = 5.
a. Determine the firm's profit-maximizing level of output. Compute its profit.
b. The industry demand curve is Q = 200 -5P. What is the total market demand at the current $16 price? If all firms in the industry have cost structures identical to that of firm Z, how many firms will supply the market?
c. The outcomes in parts a and b cannot persist in the long run. Explain why. Find the market's price, total output, number of firms, and output per firm in the long run.
d. Comparing the short-run and long-run results explain the changes in the price and in the number of firms.
