Answer to Question #195886 in Microeconomics for Dennis

Question

A profit maximizing firm has a cost structure given as TC=q2+q+5. The firm operates in a perfectly competitive environment and faces a market price of GH10,(i.ep=10). The market conditions caused the price to increase by GH5. Comment on the welfare of the firm.

Answer 1

If the market price increase by GH5, then the firm's total revenue will decrease as quantity demanded will drop. This follows from the law of demand where an increase in price of a commodity makes the quantity demanded to decrease and vice-versa.