Question

Consider a price-taking firm in a perfectly competitive market with the cost function

C(Q) = 250+ 4Q + Q²
and MC(Q)=4+2Q. $225 of the fixed cost are sunk and $25 of the fixed cost are avoidable. What is the firm's profit if the current market price is $18.0? No units, no rounding.
Your Answer:

Answer 1

The firm's profit with a market price of $18.0 is -$905.0.

Step-by-step explanation:

To calculate the firm's profit, we need to determine the firm's total revenue and total cost at the given market price of $18.0. The total revenue is the quantity of output multiplied by the market price, so in this case, it is 40 units multiplied by $18.0, which equals $720.0. The total cost can be calculated by substituting the quantity of output (40) into the cost function C(Q) = 250 + 4Q + Q^2. The total cost is $250 + 4(40) + (40^2), which equals $1,650. Applying the fixed cost information, we subtract the avoidable fixed cost ($25) from the total cost to get $1,625.0. Finally, the profit is calculated by subtracting the total cost from the total revenue, so it is $720.0 - $1,625.0, which equals -$905.0.