Question

Suppose you are the manager of a watchmaking firm operating in a competitive market. Your cost of production is given by Cequals400plus2q squared​, where q is the level of output and C is total cost.​ (The marginal cost of​ production, MC (q )​, is 4​q; the fixed​ cost, FC, is ​$400​). If the price of a watch is ​$80​, how many watches should you produce to maximize​ profits?

Answer 1

The quantity to maximize profit = 20 units

Step-by-step explanation:

In a perfectly competitive market , profit is maximized at the quantity where the marginal cost is equal to marginal revenue.

Note that the MC is the change in total cost as a result of a change in total production unit by a unit

Marginal revenue is the change in total revenue as a result of selling additional unit of product. For a perfectly competitive it is equal to the selling price.

To maximize profit , MR = MC

MC- 4q MR- 80

4q = 80

q = 80/4 = 20

The quantity to maximize profit = 20 units