Purchase Solution

Calculating The Optimal Output of a Competitive Firm

Not what you're looking for?

Ask Custom Question

It is assumed that the liquid soap market is perfectly competitive and the current price of a case of liquid soap is $42.00. The firm has estimated it's marginal cost function to be as follows: MC=0.006Q.

1. Calculation for # cases to maximize profits with example.
2. What happens if the firm unilaterally raises prices in this market?
3. What happens to profit max level of output if the market price quickly increased to $54.00/case? Explain why the output level changes.
4. Can the firm benefit by advertising in this perfectly competitive market?
5. What would happen to the price of liquid soap if the firm monopolizes the market, does it rise or fall? What effect does that have on the firm's profits for the liquid soap division?

Purchase this Solution
Solution Summary

The solution describes the steps to estimate the optimal output of a perfectly competitive firm. It also discusses the impact of unilateral increase in price, advertising and monopolization on output of the given firm.

Solution Preview

1. Calculation for # cases to maximize profits with example.

Firm can maximize their profits by setting their output level such that market price is equal to its marginal cost.
Put MC=$42
0.006Q=42
Q=42/.006=7000 cases

2. What happens if the firm unilaterally raises prices in this market?
Size of a firm in a competitive market is so small that it cannot influence the market price. Even if it does, there will be a large number of sellers who will be ...

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
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • The answer to calculating optimal output and profit

    Solution describes the steps to calculate optimal output level and economic profit of a perfectly competitive firm.

  • Calculating optimal output, price and consumer expenditure

    367704 Calculating optimal output, price and consumer expenditure Suppose a perfectly competitive industry cab produce roman candles at a constant marginal cost of $10 per unit.

  • Supply Curve

    Thus the result matches with the plot. The solution goes into a lot of detail about calculating the optimal supply curve for the question below.

  • Selecting optimal output level

    309141 Selecting optimal output level Please refer problem 3 from the attached file for graph. The accompanying graph (bottom of this page) summarizes the demand and costs for a firm that operates in a monopolistically competitive market. a.

  • Perfectly Competitive Equilibrium

    103058 Calculating optimal output and profits and comparing monopoly to perfectly competitive markets. Calculating optimal output and profits and comparing monopoly to perfectly competitive markets. 1. Perfectly Competitive Equilibrium.

  • Calculating optimal level of input required

    Because ZCorp sells its product in a perfectly competitive market, it can sell all the Q it produces for $25. The current market price for input X is $100. How many units of X will ZCorp buy?

  • Calculating optimal amount of input (X)

    Because ZCorp sells its product in a perfectly competitive market, it can sell all the Q it produces for $25. The current market price for input X is $100. How many units of X will ZCorp buy?

  • Determining Optimal Output level

    Solution describes the steps to find out price, output, profit per unit and ATC at optimal level of output for a monopolistically competitive firm. It also determines the price for a competitive firm in the long run.

  • Finding optimal number of output

    422202 Find the optimal level of output. Please see the attached file for graphs. 1) Figure 6.2 shows the cost structure of a firm in a perfectly competitive market.

View More Related Solutions