A firm sells its product in a perfectly competitive market where other firms charge a price of $80 per unit. The firms total cost are

C(Q) = 40 + 8Q + 2Q^2

a) how much output should the firm produce in the short run?
b) What price should the firm charge in the short run?
c) What are the firm's short run profits?
d) What adjustmenst should be anticipated in the long run?

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Solution:

a) how much output should the firm produce in the short run?

Total cost TC=C(Q)=40+8Q+2Q^2
Marginal cost is given by
MC=d(TC)/dQ=8+4Q

Prevailing Market Price=$80

In a perfectly competitive market, each seller is a price taker and produces such that ...

Solution Summary

Solution describes the steps for calcualting output level at current prevailing price in the market. It also calulates the profit of the firm in the short run. Antipicated long run adjustments are also discussed.

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