Question

In order to maximize profit, this perfectly competitive firm should produce:________.a. 30 units of output. b. 60 units of output. c. 50 units of output. d. 40 units of output.

Answer 1

Answer:

Perfect Competition meaning & equilibrium condition. Explanation of various cases when Q can be either options.

Explanation:

Perfect Competition market is a market with many buyers & sellers, selling homogeneous products, at identical prices.

Perfect competition firm is at equilibrium, when : Marginal Revenue (MR), ie same as Price (P) = Marginal Cost (MC)

• Suppose TC = 100 + Q^2 , P = 60

Then MC =  2Q . Equalising MC & P, Q = 60 / 2 = 30

• Suppose TC = 100 + Q^2 , P = 80

Then MC = 2Q. Equalising MC & P , Q = 80/2 = 40

• Suppose TC = 100 + Q^2 , P = 100

Then MC  = 2.  Equalising MC & P, Q = 100/2 = 50

• Suppose TC = 100 + Q^2 , P = 120

Then MC = 2Q. Equalising MC & P, Q = 120 / 2 = 60