Answer to Question #275592 in Economics for pau

Question

"The Green Company produces chemicals in a perfectly competitive market. The current market price is $40;the firms total cost is C=100+4Q-Q².

a.Determine the firms profit maximizing output.More generally, write down the equation for the firms suppy curve in terms of price P.

b. Complying with more stringent environmental regulations increases the firms fixed cost from 100 to 144.Would this affect the firms output? Its supply curve?4

c.How would the increase in fixed costs affect the markets long run equilibrium price? The number of firms?(Assume that Greens costs are typical in the market.)

Answer 1

a. The firms profit maximizing output is produced at P = MC, where MC equals to the firms supply.

$MC = C'(Q) = 4 + 2Q = 40,$

Q = 18 units.

b. The increase in the firms fixed cost from 100 to 144 would not affect the firms output and its supply curve, because MC will remain the same.

c. The increase in fixed costs will increase the markets long run equilibrium price and decrease the number of firms, as profits will decrease.