A firm haj the following marginal revenue and total cost function; MR - 140 - 2

Question

A firm haj the following marginal revenue and total cost function; MR - 140 - 2 (output) TC = 50 + 10 (output) + 1/2 (output)1 Determine the revenue maximiration output and price. Graph the total revenue (unction and total cost function on the same graph. Can you determine a break even output from the graph? Oetermine the profit maximization price and profit maximization output. What is the maximum profit? Determine the value of the deadweight loss created in this market Illustrate graphically your answer. Explain how a DWL can be generated in an imperfect market? What is meant by asymmetries information?

Explanation / Answer

Solution 1)

We have:

MR= 140 – 2Q

TC= 50+ 10Q +0.50 Q^2

For revenue maximizing output, MR would be zero:

140-2Q= 0

Q = 140/2

Q=70

Solution 2)

Differentiating TC with respect to Q, we get:

MC= 10 + Q

For Profit maximization, MR = MC

140-2 Q = 10+ Q

3Q = 130

Q= 43.33 units

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