Explore BrainMass
Share

Market Equilibrium in Perfect Competition

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

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

© BrainMass Inc. brainmass.com October 16, 2018, 11:21 pm ad1c9bdddf
https://brainmass.com/economics/general-equilibrium/market-equilibrium-in-perfect-competition-255275

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.

$2.19
Similar Posting

Perfect Competition in the Market for Hotel Rooms

Suppose perfect competition prevails in the market for hotel rooms. The current market equilibrium price of a standard hotel room is $100 per night. Show that the current market equilibrium is efficient, assuming that both the marginal cost incurred by sellers and the marginal benefit perceived by buyers reflect all costs and benefits associated with production and use of hotel rooms. Suppose a $10 per night tax is levied on hotel occupancy. Show how this tax will prevent the market from achieving efficient output. Show the loss in net benefits from hotel use resulting from the tax. Create a graph on a spreadsheet program (such as MS Excel), copy and paste it into a MS Word document, write your answer in the MS Word document.

View Full Posting Details