Return to question er fims charge a price of $70 per unt. The firm\'s total cost

Question

Return to question er fims charge a price of $70 per unt. The firm's total costs are qa A firm sells its product in a perfectly competitive market where oth 50+100+ 202 a. How much output should the firm produce in the short run? [ 20] O units b. What price should the firm charge in the short run? c. What are the firm's short-run profits? 750 d. What adjustments should be anticipated in the long run? Entry will occur until economic profits shrink to zero. No firms will enter or exit at these profits. Exit will occur since these economic profits are too low

Explanation / Answer

a) Firm would produce where P = MC (Profit is maximized)

MC = dC/dQ = 10 + 4Q

10 + 4Q = 70

Q = 15 units

b) Firm is a price taker :

P = $70 (same as the market)

c)

Profit = PQ - C = 70 x 15 - 50 - 150 - 450 = 400

d) Option 1 is correct (Long term economic profit = 0 in a competitive market)

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