Question

A firm produces a product in a competitive industry and has a total cost function​ (TC) of TC (q )equals50plus2qplus2q squared and a marginal cost function​ (MC) of MC (q )equals2plus4q. At the given market price​ (P) of ​$18​, the firm is producing 5.00 units of output. Is the firm maximizing​ profit? No . What quantity of output should the firm produce in the long​ run? The firm should produce 4 ​unit(s) of output. ​(Enter your response as an integer.​)

Answer 1

Check the explanation

Step-by-step explanation:

If the company in question is maximizing profit, the price will subsequently be the same with the marginal cost. The setting price equal to marginal cost results in P = 20 = 4 + 4 q = MC , or q = 4.

The company is not maximizing their income, since it is as they are manufacturing too many outputs. The present level of profit is profit = 20 * 5 - (50 + 4 * 5 + 2 * 5 * 5) = - 20, while the profit maximizing level of profit will be = 20 * 4 - (50 + 4 * 4 + 2 * 4 * 4) = - 18.

When there’s no change in the price of the product or the cost/expenses structure of the company, the company should produce q = 0 units of output in the long run given that at the quantity where price is the same with the marginal cost, the economic profit is negative. The company should exit the industry.