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    Producers, consumers, and competitive markets

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    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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    Solution Preview

    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

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