Homework 3 Due July 25, 2018 1. (a) Suppose you are selling a product for $10 pe
ID: 1167007 • Letter: H
Question
Homework 3 Due July 25, 2018 1. (a) Suppose you are selling a product for $10 per unit in a competitive industry; using the perfectly competitive model, show and explain what your profit will be if you sell 20 units at a cost of $5 per unit. (5 Points) (b) What will you do to maximize profit if your marginal cost falls from $10 to $6? (5 Points) 2. Suppose you decide to manage a monopoly instead. If your demand and cost functions are estimated as follows: (a) What is the price-quantity combination that will (b) What will be your maximum profit? (5 Points) P-200-2Q and C(Q1,200 2Q maximize profit? (5 Points) (c) What will be the maximum revenue to be obtained? Hint solve for MR quantity, use the quantity to solve for price, and multiply price by MR quantity. (5 Points)Explanation / Answer
(1)
(a) For a perfectly competitive firm,
Total revenue (TR) = Price x Quantity = $10 x 20 = $200
Total cost (TC) = Unit cost x Quantity = $5 x 20 = $100
Profit = TR - TC = $(200 - 100) = $100
(b) A perfectly competitive firm maximizes profit by equating price with marginal (unit) cost, where price is equal to market price since the firm is a price taker. When marginal cost decreases, price remaining unchanged, marginal profit (= Price - Marginal cost) increases, which can be maximized by increasing output. Therefore, I will increase quantity sold.
NOTE: As per Chegg Answering Policy, first question is answered.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.