Question

I know that A) Q*=0 and firm should shut down and B) profits = -$1,000. But do not understand how to get C.

3. A perfectly competitive firm sells its product for $100/unit, has $1000 in fixed costs, and has an average variable cost function and a marginal cost function given below: AVC(Q)= -20Q +500 MC(Q) = Q2 - 40Q+500 a. Determine this firm's profit maximizing level of output. b. Determine this firm's profits. c. At what level of output would AVC be minimized?

PLEASE SHOW ALL STEP-BY-STEP WORK ON HOW TO SOLVE FOR C) LEVEL OF OUTPUT WHERE AVC IS MINIMIZED?

Answer 1

3.

a.

Profits are given as:

To maximize profit, we have:

P = MC

gives: Q = 20

b.

Profits:

AVC = 300 > Price. Hence losses and firm should shut down.

c.

To minimize AVC, we have:

gives: Q = 30

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