A Competitive Firm Sells Its Product at a Price of $0.10

question 93

Essay

A competitive firm sells its product at a price of $0.10 per unit. Its total and marginal cost functions are:
TC = 5 - 0.5Q + 0.001Q²
MC = -0.5 + 0.002Q,
where TC is total cost ($) and Q is output rate (units per time period).
a. Determine the output rate that maximizes profit or minimizes losses in the short term.
b. If input prices increase and cause the cost functions to become
TC = 5 - 0.10Q + 0.002Q²
MC = -0.10 + 0.004Q,
what will the new equilibrium output rate be? Explain what happened to the profit maximizing output rate when input prices were increased.

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Definitions:

Government Programs

Initiatives and services provided by the government aimed at achieving specific socio-economic goals.

Economic Efficiency

A situation where resources are allocated in the most effective way possible, maximizing the potential for meeting needs and wants.

Poverty

A condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education, and information.

Low Incomes

Earnings that are below average or sufficient levels, potentially leading to poverty.