Question #68085

The short run cost function of a firm is as follows: total cost=200+5Q+2Q^2 :where Q=physical units of the product of the firm. What would be the level of optimum output ?

Expert's answer

N.B. Presumably, this question is about a firm operating in a competitive market, since it contains no information about the impact of the produced units on the market price.

Answer:

A firm's production level reaches its optimum and hence maximizes profit when the firm produces where marginal revenue equals marginal costs, i.e. MR=MC (1)

In a competitive market any particular firm is a price-taker and, therefore, MR=P and (1) becomes MC=P.

Calculate marginal cost:

MC = dTC / dQ

MC = d(200+5Q+2Q^2) / dQ

MC = 5+4Q

Therefore:

MC = P

5 + 4Q = P

Q = (P - 5) / 4

where P is the price of a physical unit of the product.

Answer:

A firm's production level reaches its optimum and hence maximizes profit when the firm produces where marginal revenue equals marginal costs, i.e. MR=MC (1)

In a competitive market any particular firm is a price-taker and, therefore, MR=P and (1) becomes MC=P.

Calculate marginal cost:

MC = dTC / dQ

MC = d(200+5Q+2Q^2) / dQ

MC = 5+4Q

Therefore:

MC = P

5 + 4Q = P

Q = (P - 5) / 4

where P is the price of a physical unit of the product.

## Comments

Assignment Expert09.04.20, 15:40Dear visitor,

please use panel for submitting new questions

Solly09.04.20, 05:37The firms production function is given by Q=700Le^-0.02L,

Where Q denotes the number of units produced and L the number of labourers. Find the size of the workforce that maximises output

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