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economic profits

You are a manager in a perfectly competitive market. The price in your market is $35. Your total cost curve is C(Q)= 10+2Q+0.5Q2.
a. What level of output should you produce in the short run?
b. What price should you charge in the short run?
c. Will you make any profits in the short run?
d. What will happen in the long run?
e. How would your answer change if your costs were C(Q)=80+5Q+30Q2 ?

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a.What level of output should you produce in the short run?

C(Q)=10+2Q+0.5Q^2

Marginal Cost is given by
MC=dC(Q)/dQ=2+Q

We know that a perfectly competitive firm maximizes its profits by setting its output such that MC=MR=Market Price
So, Put MC=Market price
2+Q=35
Q=33 units

b. What price should you charge in the short run?
Every firm is price taker in ...

Solution Summary

The economic profits are evaluated.

$2.19