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cost functions of a perfectly competitve firm

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Consider the following cost functions of a perfectly competitive firm?

Marginal Cost= MC = 6q + 20

Average Total coat = ATC = 20 +3q + 10/q

Suppose the price is P=$28

A) What is the profit maximizing output for Q

B) Calculate the firms profit or loss, should firm shut down if loss?

C) Calc producer surplus, how much is the difference between the producer surplus and profit in this case?

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Solution Summary

The cost functions of a perfectly competitive firms are examined.

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A) the profit maximizing rule for a perfectly competitive firm is P =MC

so P = 28 = 6q + 20 = MC, solve for q and get q = 1.33 units.

B) the firm sells 1.33 units, so ...

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