1. Assume the firm faces an output price of $110. How many units of output does firm produce
2. Consider that average total cost is minimized at 10 units of output, what would we expect to occur to industry in long run. What will be output of firm in long run and why
In a perfectly competitive market, for profit maximization level:
MC = Price
Thus for maximizing profits:
100+2Q = 110
Solving for Q we get:
2Q = 110 - 100
=> Q = 10/2
=> Q = 5
Does for ...
The solution explains the microeconomic concept of profit maximization using the scenario in the question.
profit-maximizing output level
You are the CEO of ClipIt, a paper clip manufacturer. Your company enjoys a patented technology that allows it to produce paper clips faster and at a lower cost than your only rival, FastenIt. Clipit uses this advantage to be the first to choose its profit-maximizing output level in the market. The inverse demand function for paper clips is P=500-2Q, ClipIt's costs are Cc(Qc)=2Qc , and FastenIt's costs are Cf(Qf)=4Qf.
a.What is ClipIt's profit-maximizing output level? FastenIt's?
b.What is the market's equilibrium price?
c.How much profit does each firm earn?
d.Ignoring antitrust considerations, would it be profitable for your firm to merge with FastenIt? If not, explain why not; if so, put together an offer that would permit you to profitably complete the merger.