Question

A firm sells its product in a perfectly competitive market where other firms charge a price of $90 per unit. The firm's total costs are CIQ) = 60 + 14Q+ 20 a. How much output should the firm produce in the short run? C units b. What price should the firm charge in the short run? $O c. What are the firm's short-run profits? $D d. What adjustments should be anticipated in the long run? Entry will occur until economic profits shrink to zero. Exit will occur since these economic profits are too low. No firms will enter or exit at these profits.

Answer 1

Answer
a)
the firm produces at MC=P
in the short run
MC= change in total cost =differentiation of the total cost function
MC=dC/dQ=14+4Q
MC=P
14+4Q=90
4Q=76
Q=19
the firm produces 19 units
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b)
the firm charge $90 as given
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c)
Profit=TR-TC
TR=P*Q=90*19=1710
TC=60+14*19+2*19^2=1048
Profit=1710-1048
=662
the profit is $662

d)
Option 1
in the long run mew firms will enter as the existing firms are making profits and that attracts new firms up to the profit is zero.