A firm in a competitive market has the following cost function: C(q, beta)=q^beta where beta is...
Question:
A firm in a competitive market has the following cost function:
{eq}C(q,\beta)=q^\beta {/eq} where {eq}\beta >1 {/eq}.
Assume that the firm sells its products at a price p.
a. Find {eq}q(p,\beta) {/eq} and the indirect profit function {eq}\Pi^*(p,\beta) {/eq}.
b. What is the economic interpretation of this sign?
Profit Maximization:
A profit-maximizing level of production is where the marginal cost of production equals the marginal revenue. Where the marginal cost equals changes in total cost in response to one unit change in production. The marginal revenue equals changes in total revenue when the production changes by one unit.
Answer and Explanation: 1
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View this answer1. The equilibrium (i.e., profit-maximizing) condition is MR = MC. Because the unit price is constant at {eq}p {/eq}, the marginal revenue is...
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