Calculating The Optimal Output of a Competitive Firm

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?

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 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.

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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.
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d. What ad

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TC = $5,625 + $5Q + $0.01Q2
Because this industry is purely competitive in nature, each firm behaves as a price taker and market price is given at $20 per unit (so that P = MR = $20). Finally, assume

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TC=1,000+ 10Q -2Q^2 + 0.5Q^3
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P = 80-3Q
(with MR = 80-6Q).
Its total cost function is
TC = 20Q + 200
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A perfectly competitivefirm faces the following monthly costs and price.
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ATC = 5 + + 0.01Q
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P = 20.
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d. If there a

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X =2200 -100P
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Please refer attached file for graph.
Assuming that thefirm in the attachment is a profit maximizer operating in the short run, determine its optimal price
Determine thefirm's profit per unit in the attachment.
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If the attached monopolist were to behave like a perfectly competitivefirm o

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Output Marginal Cost Average Variable Cost Average Total Cost
0
1 $ 8.00 $ 8.00 $ 17.00
2 7.00 7.50 12.00
3