Question

Assume a competitive firm faces a market price of ​$90​, a cost curve​ of: C​ =1/3q^3 + 9q + 1,250​, and a marginal cost​ of: MC = q^2 +9.

A. What is the​ firm's profit maximizing output​ level? ___units.  ​(round your answer to two decimal​places)

B. What is the firms profit maximizing price $____? (round to the nearest penny)

C. What is the firms profit $____? (round to nearest penny)

D. In the shrort run the firm should______?

Answer 1

Answer and Explanation:

A. Profit maximizing output level

P = MC

$90 = q^2 + 9

q = 9 units

B. At 9 units the profit maximizing price should be $90

C. Profit = TR - TC

= P x Q - TC

= $90 x 9 -( 1/3q^3 +9q + 1250)

= 810 - (1574)

Loss = 764

D. If the firm's price is greater than its average variable cost then the firm should continue in the short run because of positive contribution margin. However, if the P < AVC then it should stop its operations as it would have negative contribution margin.