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    Finding optimal output level

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    Firm PQR produces a product 'Alpha' under perfect competition market conditions. The cost function for the firm is:
    TC = 1500 + 200Q + Q^2

    The market supply and demand equations for the product 'Alpha' in the perfect competition market are:
    QS = 40,000 + 60 P
    QD = 80,000- 40 P

    Based on the information given above, calculate:

    1. The profit maximizing output for PQR.
    2. The economic profits earned by PQR.
    3. Is the industry for product 'Alpha' in equilibrium?

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    Solution Preview

    1. The profit maximizing output for PQR.

    For equilibrium, Put Qs=QD

    Each firm is a price taker in perfectly competitive environment. So, PQR will also sell its output at ...

    Solution Summary

    Solution describes the steps to find out profit maximizing output and economic profits of a perfectly competitive firm.