Suppose a Firm Faces the Inverse Demand Curve

question 47

Essay

Suppose a firm faces the inverse demand curve
. The firm has the total cost curve
.
a. Assuming that the firm operates in the market, find the firm's profit maximizing output, price, and profit.
b. Given your answer to part a, would this firm stay in the market or exit?

---

Definitions:

Contribution Margin

The difference between the sales revenue of a product and its variable costs, used to cover fixed expenses and contribute to profits.

Incremental Analysis

A decision-making technique that evaluates the financial consequences of making one more unit of a product or entering a new market.

Relevant Costs

Those costs and revenues that differ across alternatives.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.