Consider the following information for a perfectly competitive firm during a one month time period

Economics Dec 18, 2020

Consider the following information for a perfectly competitive firm during a one month time period. Assume that Q = the level of output and all costs are economic costs.

Market price = $12. Total cost = 60 + 2Q + 0.5Q2 Marginal cost = 3 + Q At the profit-maximizing or loss-minimizing output level, economic profit would equal:

Hint: Solve for Q first. Remember, a firm maximizes profit producing a level of output where the last unit has a marginal revenue equal to its marginal cost.

Select one:

a. +$118.50

b. -$10.50

c. +$108

d. -$75

Expert Solution

Here,

P=12

In perfect competition, we have

Price = Marginal revenue

Total cost= 60 + 2Q + (1/2)Q^2

Now,

Let's suppose that marginal cost= 2+Q

Price=Marginal revenue=Marginal cost at equilbrium

So, 12=2+Q, Q= 10

Profit= 120-60-20-50

Thus, the firm is facing a loss of $10.

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