Question

Consider a perfectly competitive market in which each firm's short-run total cost function is C = 64 + 15q + q2, where q is the number of units of output produced. The associated marginal cost curve is MC = 15 + 2q. In the short run each firm is willing to supply a positive amount of output at any price above . (Enter your response as a real number rounded to two decimal places.) If the market price is $22, each firm will produce 3.5 units in the short-run. (Enter your response as a real number rounded to one decimal place.) Each firm earns a profit of . (Enter your response as a real number rounded to two decimal places, and use a negative sign if the firm has a loss rather than a profit.)

Answer 1

The firm is having a negative profit or loss of $51.75.

Step-by-step explanation:

The cost function of a perfectly competitive firm is given as C = 64 + 15q + q2.

The marginal cost is MC = 15 + 2q.

The market price of the product is given as $22.

Each firm is producing 3.5 units in the short run.

The profit or loss to the firm is the difference between total revenue earned and the total cost incurred.

Total cost

= 64 + 15q + q2

= 64 + 15
`*` 3.5 +
`3.5^(2)`

= 64 + 52.5 + 12.25

= 128.75

Total revenue

= Price
`*` Quantity

= $22
`*` 3.5

= $77

Profits

= Total revenue - Total cost

= $77 - $128.75

= - $51.75