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    Competitive Environment

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    A firm operating in a purely competitive environment is faced with a market price of $250. The firm's total cost function (short run) is

    TC = 6,000 + 400Q - 20Q^2 + Q^3

    a. Should the firm produce at this price in the short run?
    b. If the market price is $300, what will total profits (losses) be if the firm produces 10 units of output? Should the firm produce at this price?
    c. If the market price is greater than $300, should the firm produce in the short run?

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    https://brainmass.com/economics/environment/competitive-environment-firms-total-cost-303759

    Solution Preview

    a. Should the firm produce at this price in the short run?

    TC=6000+400Q-20Q^2+Q^3
    We see that TC=6000 at Q=0, So, TFC=6000

    TVC=TC-TFC=400Q-20Q^2+Q^3

    AVC=TVC/Q=400-20Q+Q^2
    Let us find minimum of AVC, Put d(AVC)/dQ=0
    d(AVC)/dQ=-20+2Q=0
    So, ...

    Solution Summary

    The context of a competitive environment is emphasized.

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