A firm sells its product in a perfectly competitive market where other firms charge a price of...
Question:
A firm sells its product in a perfectly competitive market where other firms charge a price of $110 per unit. The firm's total costs are {eq}C(Q) = 60 + 14Q + 2Q^{2} {/eq}.
(a) How much output should the firm produce in the short run?
(b) What price should the firm charge in the short run?
(c) What are the firm's short-run profits?
(d) What adjustments should be anticipated in the long run? Choose from the options below.
- No firms will enter or exit at these profits.
- Entry will occur until economic profits shrink to zero.
- Exit will occur since these economic profits are too low.
Competitive Production in the Short-run:
A short-run is a period in which at least one factor of production is varied. In competitive market, there are many buyers and sellers with freedom of entry and exit to and from the market. Competitive production is the efficient market for provision of goods and services since there is no Deadweight loss.
Answer and Explanation: 1
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In perfect competition, firm equate their marginal costs with price:
{eq}P=MC\\$110=MC\\MC=\displaystyle \frac{\partial c(Q)}{\partial Q}:...
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Perfectly Competitive Market: Definition, Characteristics & Examples
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Chapter 3 / Lesson 63
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Learn the definition of perfect competition and understand how a perfectly competitive market works. Study the characteristics of a perfectly competitive market with examples.
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