Question

You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q². Your firm's maximum profits are

a. 36

b. 40

c. 60

d. 80

Answer 1

$C=60+4Q^2$

$P=$ $$40$

Optimal price: $40.

Optimal output:

$MR=P=40$

$MC=8Q$

To get optimal output:

$MR=MC$

$40=8Q$

$Q=5$

Maximum profit:

$=TR-TC$

$=PQ-(60+4Q^2)$

$=(40\times5)-[60+4(5^2)]$

$=40.$

The firm's maximum profits are: $40.