Question

5. Suppose that a competitive firm's marginal cost of pro- ducing output q is given by MC(q) = 3 + 2q. Assume that the market price of the firm's product is $9. a. What level of output will the firm produce? b. What is the firm's producer surplus? c. Suppose that the average variable cost of the firm is given by AVC(q) = 3 + q. Suppose that the firm's fixed costs are known to be $3. Will the firm be earning a positive, negative, or zero profit in the short run?

Answer 1

Answer:

Answers ) as aiven, mc=3+29 ; P = $9 [P = price] In competitive equilibrium condition, Pame. 9= 3+29 = 9-3= 29 7 6 = 29 = q = 6/2 => q = 3 Therefore, the profit maximising output level is 9=3. by producer Supplus = Pq - Spida = P2 - 3 (9) de q=3 =9x3 90 =pl - =9x3 - [ 32 ] = 27 – 943 = 27-27=0. Therefore, here producer supples is zeno (0). c) airen, Ane = 3+q ; FC (Fixed cost) = $3 A.TUC (Total variable cost) = Ave x q = (3+Q) 2 =) TVC = 39 + 92 TC (Total cost = TVC + FC = 39+9² + 3 TR (Total Revenue) = P2 = 9x3=27 & TC = 343+ (3) ² + 3 =21 profit (A) = TR-TC = 27 - 21 = 6 profit level of the firm is $6.