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    Market Equilibrium in Perfect Competition

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    1.Use the following to demonstrate why a firm producing at the output level where MR=MC will also be able to maximixe its total profit. ( ie be at the point where marginal profit is equal to zero
    P=170-5Q
    TC+ 40= 50Q + 5Q2 please show the steps

    2.In a perfectly competitive market a firm had to be either "good or lucky" explain what is meant by this statement Illustrate with the use of a diagram

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    Solution Preview

    It is said that to maximize profits we need the condition that MR = MC.

    The easiest way to look at it is just look at the graph. MR is the total revenue from each additional unit, and marginal cost is the cost for each additional unit. When MR = MC, the two are equal, each additional unit provides you just enough to meet the cost. If you raise the quantity further, MR falls, while MC rises. Thus each unit that you sell can no longer cover its cost, MR < MC and the firm has to pay for this from their own pocket, and hence profits will fall.

    For this question you have the following:
    Demand: P = 170 - 5Q
    So we can find the MR as the curve with same intercept and twice the slope:
    MR = 170 - ...

    Solution Summary

    This solution provides the steps to determine marginal cost and uses that to determine the optimal price and quantity in a perfectly competitive market.

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