Question

Suppose the cost function for a firm is given byC(Q) = 60 + 4Q+ 2Q2.(a)If the firm sells output in a perfectly competitive market and other firms in the industry sell output at a price of $20, what level of output should the firm produce to maximize profits or minimize losses?(b)What will be the level of profits or losses if the firm makes the optimal decision?(c)After you’ve worked the problem, reconsider the original situation (with price of $20) but with fixed costs equal to 20. Finally reconsider the original situation (with fixed costs equal to $60) but with a market price of $8.

Answer 1

ANSCOTR Cost function CCQ) = 60 + 40-1202 (a) Price: $200 Marginal cost: 4+ 40. price is So equal profit to mopo mizing condition where (P=MC=MR) Marginal cost and Marginal Revenue 4+40 - 20 400 16 = 4 units in profit maximizing output Cost output (6) profit . & Revenue - so Revenue 2 Revenue - Pricex 4x20 $80 . Costa 60 + 40 + 402 60 + 414 + 4 (42 - 60 & 167 64 - 8.140 so profit / loss = 80-190 -60 so Loss = $60

(c) when foxed cost- 20. Total Cost CC 200 401 202 4+ 40. Marginal cost Price $200 P= MC 4t4Q=20 40 = 16 0 to 4 умдi rnfu'Я обере 0- 4 чnik • црху . Revenue Price x output - 20x4 in $80 o Cost – 20+ 40 + 202 a 20 +464) + 2 (492 2 200 16 of 32 - 8.68 So profit do-68 a $12 So profr

when fired Costa $60 Tota cost cco) - bor 40+ 202 Marginal Costa 4490 pace = $8. р мс whQzde 407 4 = unit us profot maki mizing Oceapis. maximizing outbus Revenue = Police & output 2 d. Cost = 606 497 202 & 60 & 400 12602 2 60 1442 - 866 los) profit 8-66 - -$58 So Loss is $58