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Profit Maximization Output Levels

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In perfectly competitive market a firm typically has short run average total cost curve and marginal cost curve of:
ATC-100+Q+(100/Q)
MC=100+2Q

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

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Solution Preview

Answer 1:
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 ...

Solution Summary

The solution explains the microeconomic concept of profit maximization using the scenario in the question.

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