Answer to Question #1160 in Microeconomics for mothusi ditlou
20=4+4q, or q=4.
The firm is not maximizing profit, since it is producing too much output.
The current level of profit is profit = 20*5-(50+4*5+2*5*5) = –20,
and the profit maximizing level is profit = 20*4-(50+4*4+2*4*4) = –18.
Given no change in the price of the product or the cost structure of the firm, the firm should produce q=0 units of output in the long run since at the quantity where price is equal to marginal cost, economic profit is negative. The firm should exit the industry.
Need a fast expert's response?Submit order
and get a quick answer at the best price
for any assignment or question with DETAILED EXPLANATIONS!