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Finding optimal output level

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?

Solution Preview

1. The profit maximizing output for PQR.

Qs=40000+60P
QD=80000-40P
For equilibrium, Put Qs=QD
40000+60P=80000-40P
100P=40000
P=400

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.

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