Answer to Question #280957 in Microeconomics for abeni

Question

Perfectly Competitive firm faces a market price of birr 40 and has the following

Cost function: STC = 5800+ 20Q+0.02Q2.

A. What quantity of output is best for this firm in the short-run? Why?

B. Should firm attempt to change some price other than the market price of 40? Why or why not?

Answer 1

A. MC=P

MC=20+0.04Q

40=20+0.04Q

Q=500

B.No, because the ultimate condition for maximizing profit is such a volume of output at which the price is equal to the marginal costs.