Profit Maximizing Welfare
Not what you're looking for?
See attached problems, please.
Purchase this Solution
Solution Summary
Profit Maximizing Welfare is exemplified in the solution.
Solution Preview
See the attached file.
Question 1
1. Consider a firm that can produce x at a cost c(x)=x^2. This output can be sold in a competitive market at a price p=12 per unit. The profit of this firm is this ?(x) = px - c(x) = 12x - x^2.
a. How much x will this produce to maximize its profit? (Hint: simply max the profit function w.r.t. x to find the optimal level.) How much profit does the firm make in this case?
Answer:
Differentiate the profit function w.r.t. x and equate it to zero
d ?(x)/dx = 12-2x
Equating it to zero, we get 12-2x=0
Solving for x, we get x=6
Thus, firm should produce 6 units of x to maximize profit.
Maximum profit = ?(6) = 12*6- 6^2=36
2. Now assume that production causes a negative externality that amounts to d(x)=2x^2. The efficient output level is the one that maximized welfare, which is the firms profit minus the damage caused, W(x) = ...
Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.