Under a perfect competition the price as sh. 6 per unit has been determined. An individual firm has a total cost function given by C=10+15Q - 5Q^2+Q^3/3. Find the revenue function and the quantity produced at which profit will be maximum profit
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Expert's answer
2015-03-12T10:30:14-0400
P = 6 per unit C=10+15Q - 5Q^2+Q^3/3. i) Revenue function is: TR = P*Q = 6Q ii) The quantity produced at which profit will be maximum profit is in the point, where marginal revenue equals marginal cost: MR = MC MR = TR' = 6 MC = C' = 15 - 10Q + Q^2 15 - 10Q + Q^2 = 6 Q^2 - 10Q + 9 = 0 Q1 = 9 units, Q2 = 1 unit (may not be profit maximizing). iii) Maximum profit is: TP = TR - TC = 6*9 - (10 + 15*9 - 5*81 + 729/3) = 54 - 17 = $37
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