Market price is $50. The firm’s marginal cost curve is given by MC = 10 + 2Q. a. Find the profit-maximizing output for the firm. b. At this output, is the firm making a profit? Explain your answer.

Market price is $50. The firm’s marginal cost curve is given by MC = 10 + 2Q.

a. Find the profit-maximizing output for the firm.

b. At this output, is the firm making a profit? Explain your answer.

 

answer:

Market price is $50. The firm’s marginal cost curve is given by MC = 10 + 2Q.

a. In perfect competitive market the equilibrium condition is P=MC. Then we have 10+2Q=50. So Q=20 is the firm profit maximising output.

b. In that perfectly competitive market a firm making only normal profit or zero profit. Here supply will be equal to demand. Suppose there is no fixed cost then TR=50Q and TC=10Q+2Q2. Thus profit = TR-TC=50*20 – (10*20 + 2*20*20) = 1000 – 200 – 800 =0. In that profit maximising condition firm is making zero profit.

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