Purchase Solution

# Finding optimal number of output

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1) Figure 6.2 shows the cost structure of a firm in a perfectly competitive market. If the market price is \$10 and the firm chooses the profit maximizing output level, what is its profit?

2) What will the firm produce from the figure above?
What will the firm charge?

3) Suppose that Figure 7.4 shows a monopolist's demand curve, marginal revenue, and its costs. The monopolist would maximize its profit by producing a quantity of how many units?

Suppose that Figure 7.4 shows a monopolist's demand curve, marginal revenue, and its costs. The monopolist would maximize its profit by charging what price?

Suppose that Figure 7.4 shows a monopolist's demand curve, marginal revenue, and its costs. At the profit maximizing output level, what would be the monopolist's profit?
Suppose that Figure 7.4 shows an industry's market demand, its marginal revenue, and the production costs of a representative firm. If the industry was perfectly competitive, it would produce a quantity of how many units?
Suppose that Figure 7.4 shows an industry's market demand, its marginal revenue, and the production costs of a representative firm. If the industry was perfectly competitive,what would a representative firm charge?

##### Solution Summary

Solution describes the steps to determine optimal level of output/price in the given cases.

##### Solution Preview

1) Figure 6.2 shows the cost structure of a firm in a perfectly competitive market. If the market price is \$10 and the firm chooses the profit maximizing output level, what is its profit?

A perfectly competitive firm will maximize its profits by setting its output level such that MC=Market price. A horizontal line from P=\$10, cuts the MC curve at a point where Q=100 units. It is the optimal output level.

A vertical line from the optimal point cuts ATC curve at a point where ATC is \$8.

So, Market price =P=\$10
ATC at this point=\$8
Output, Q=100
Profit=(P-ATC)*Q=(10-8)*100=\$200

2) What will the firm produce from the figure above?
A firm will maximize its profit selecting its output level such ...

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• BEng (Hons) , Birla Institute of Technology and Science, India
• MSc (Hons) , Birla Institute of Technology and Science, India
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