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Calculating profit maximizing supply level from a retailer

The Los Angeles retail market for unleaded gasoline is fiercely price competitive. Consider the situation faced by a typical gasoline retailer when the local market price for unleaded gasoline is $2.50 per gallon and total cost (TC) and marginal cost (MC) relations are:

TC = $156,250 + $2.25Q + $0.0000001Q2

MC = dTC/dQ = $2.25 + $0.0000002Q

and Q is gallons of gasoline. Total costs include a normal profit.

A. Using the firm's marginal cost curve, calculate the profit-maximizing long-run supply from a typical retailer
B. Calculate the average total cost curve for a typical gasoline retailer.

Solution Preview

A. Using the firm's marginal cost curve, calculate the profit-maximizing long-run supply from a typical retailer

MC=2.25+0.0000002Q
Price=P=$2.50
For ...

Solution Summary

Solution describes the steps to calculate profit maximizing long run supply from a typical retailer. It also calculates total average cost at this level.

$2.19