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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