PROBLEM #1 The cost function for a typical firm, competing in a perfectly competitive market, is as follows: C(q)=80+4q² , where q represents the firm's output. a. Is this a long-run or short-run cost function? Briefly explain. Find the average variable cost (AVC) and marginal cost (MC) functions, as a function of q, for the typical firm. b. The market demand for this product is Q=2160-P and the market supply is Q=2P. Find the market equilibrium price and quantity. Then use your results to find the profit-maximizing level of output that the typical firm will produce. c. Based on your answer in part b, find the profit that the typical firm will earn. Based on the profits you found, do you expect firms to exit this industry, enter this industry, or neither? (Assume that all economic costs are included in the cost function.) Briefly explain your answer.
PROBLEM #1 The cost function for a typical firm, competing in a perfectly competitive market, is as follows: C(q)=80+4q² , where q represents the firm's output. a. Is this a long-run or short-run cost function? Briefly explain. Find the average variable cost (AVC) and marginal cost (MC) functions, as a function of q, for the typical firm. b. The market demand for this product is Q=2160-P and the market supply is Q=2P. Find the market equilibrium price and quantity. Then use your results to find the profit-maximizing level of output that the typical firm will produce. c. Based on your answer in part b, find the profit that the typical firm will earn. Based on the profits you found, do you expect firms to exit this industry, enter this industry, or neither? (Assume that all economic costs are included in the cost function.) Briefly explain your answer.
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter8: An Introduction To Perfect Competition
Section: Chapter Questions
Problem 16PAE
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Transcribed Image Text:PROBLEM #1
The cost function for a typical firm, competing in a perfectly competitive market, is as
follows: C(q)-80+4q² , where q represents the firm's output.
a. Is this a long-run or short-run cost function? Briefly explain. Find the average
variable cost (AVC) and marginal cost (MC) functions, as a function of q, for the
typical firm.
b. The market demand for this product is Q=2160-P and the market supply is Q=2P.
Find the market equilibrium price and quantity. Then use your results to find the
profit-maximizing level of output that the typical firm will produce.
c. Based on your answer in part b, find the profit that the typical firm will earn. Based
on the profits you found, do you expect firms to exit this industry, enter this
industry, or neither? (Assume that all economic costs are included in the cost
function.) Briefly explain your answer.
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