Producers, consumers, and competitive markets
Suppose that a competitive firm's marginal cost of producing output q is given by MC(q)=3+2q. Assume that the market price of the firm's product is $9.
a. What level of output will the firm produce?
b. What is the firm's producer surplus?
c. Suppose that the average variable cost of the firm is given by AVC(q)=3+q. Suppose that the firm's fixed costs are known to be $3. Will the firm be earning a positive, negative, or zero profit in the short run?
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a. What level of output will the firm produce?
The first order condition for a competitive firm to maximize its profit is MC = P, i.e.:
3+2q = 9
solve for q =3
so the firm will ...
Solution Summary
Producers, consumers, and competitive markets are exemplified.
$2.19