Question

Consider a competitive firm with total costs given by TC(q) = 100 + 10q + q 2 The firm faces a market price p = 50.

(f) If fixed costs increase from 100 to 500, what happens to the profit-maximizing level of output, TR, TC, and π?

(g) If fixed costs increase from 100 to 500, should the firm continue to operate in the short-run? What about the long-run?

Answer 1

) fixed cost does not affect me & so does not affect profit maximusing decisions. Profit maximising level of output & TR remain the same. TC increases by (500-100) = 400 & I decreases by Чоо. g) Tixed So it cost does not affect should stay in the variable cost. short run men dLTO) = 10 + 2q - M L 50 = 10 +2q G= 20 50(20) – 500 – 10/20) – (20) 2 Profit= - Too It should exit in long den.