Question

3. Illustrate graphically Suppose that a competitive firms marginal cost of producing output 2 is given by MC(q)= 70+6q Assume that the market price of the firm's product is $145. A. At what level of output will the firm produce? B. How much is the firm's producer surplus? C. Illustrate graphically profit maximization point and producer surplus. D. Illustrate this market at a loss. Explain. 4. Graphically illustrate a perfectly competitive firm and a non-perfectly competitive firm side by side. Explain the differences. 5. Illustrate graphically a monopolistic competitive firm at a above normal, normal and zero economic profit. (Three separate graphs)

Answer 1

Question 3

The MC is given as. -

$MC=70+6Q$

Given the price is $145, it means that this is given in the market, which makes it a perfect competition. Hence, we have -

$MR=145$

At equilibrium -

$MR=MC$

145 = 70 +6Q

$145-70=6Q$

$75=6Q$

$Q=\frac{75}{6}=12.5$

The firm's supply curve is its MC curve. Hence, its producer surplus can be calculated as -

$PS=(P\times Q)-\int_{0}^{Q}MC.dQ$

$\Rightarrow PS=(145\times 12.5)-\int_{0}^{12.5}(70+6Q).dQ$

$\Rightarrow PS=1812.5-[70(12.5)+3(12.5)^{2}]$

$\Rightarrow PS=468.75$

This is given by the area ABE in the diagram below.

(Please consider posting as different questions.)