Suppose the market demand and supply functions are QD = 220 - 1.6P and QS = 4P - 116. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.
Q) You've researched and found that most firms in the market currently experience costs such that TC = 30 + 65Q - 14Q2 + 2.4Q3. Determine whether or not you should enter this market.
a. Firms are profitable when P exceeds MC; this only occurs at very low levels of output for my firm and thus I should not enter.
b. Plugging the market equilibrium quantity into this total cost function results in huge costs for my firm, so I should not enter.
c. Where the current equilibrium P = ATC, that price exceeds the marginal cost so I would be profitable upon entering.
d. Using the P=MC rule, the equilibrium price is above ATC at the best quantity, so entering would be profitable.