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Short and Long Run equilibrium price and output level

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The Amber Corporation total cost function (where TC is the total cost in dollars and Q is quantity) is
TC = 200 + 4Q + 2Q^2

a. If this firm is perfectly competitive and the price of its product is $24, at what quantity will the firm choose to produce?
b. Does the answer represent a short-run equilibrium or a long-run equilibrium? Explain.
c. If the answer is for short-run equilibrium, calculate the long-run price and quantity for this firm.

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Solution Summary

Solution describes the steps for calculating profit maximizing output of a perfectly competitive firm at prevailing market price. It also calculates short and long equilibrium price and quantity or the firm.

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Output Level
Solution:

a. If this firm is perfectly competitive and the price of its product is $24, at what quantity will the firm choose to produce?

TC=200+4Q+2Q^2
Marginal Cost=MC=4+4Q
In perfect competition, MC=Price
So, ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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