Question

Suppose that a competitive firm's marginal cost of producing output q (MC) is given by MC(q) = 3 + 2q. Assume that the market price (P) of the firm's product is $15. What level of output (q) will the firm produce? The firm will produce units of output. (Enter your response rounded to two decimal places.) What is the firm's producer surplus? Producer surplus (PS) is $ . (Enter your response rounded to two decimal places.) Suppose that the average variable cost of the firm (AVC) is given by AVC(q) = 3 + 19. Suppose that the firm's fixed costs (FC) are known to be $40. Will the firm be earning a positive, negative, or zero profit in the short run? In the short run, the firm's profit will be

Answer 1

Answer
6 units
$36
Negative
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The firm produces at MC=P
3+2q=15
2q=12
q=6
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Producer surplus is the area above MC and below price
PS=0.5*(P- Y axis intercept of the MC )*q
=0.5*(15-3)*6
=36
producer surplus is $36
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Variable cost =AVC*q=(3+6)*6=54
TC=FC+VC=40+54=94
Profit=TR-TC
TR=P*Q=15*6=90
Profit=90-94=-$4
The loss is $4
The profit is Negative