Suppose you are the manager of a by watch making firm operating in a competitive

Question

Suppose you are the manager of a by watch making firm operating in a competitive market. Your cost of production is given C = 300 + 2q^2, where q is the level of output and C is total cost. (The marginal cost of production, MC(q), is 4q; the fixed cost, FC, is $300). If the price of a watch is $100, how many watches should you produce to maximize profits? You should produce 25 watches. (Enter your response as an integer.) What will the profit level be? Profit will be $ 950. (Enter your response rounded to two decimal places.) At what minimum price will the firm produce a positive output? In the short run, the firm will produce if price is greater than $ per watch. (Enter your response as an integer.)

Explanation / Answer

MC = MR

4q = 100

q = 25

The number of watches for maximizing profit is 25. (Answer)

Profit = TR – TC

          = (25 × 100) – (300 + 2×25^2)

          = 2,500 – 1,550

          = $950 (Answer)

In the short-run, the firm will produce if price is greater than $62 per watch. This is the average variable cost (AVC). AVC = TC/q = 1,550/25 = $62. The price must cross the AVC.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.