A Representative Firm with Long-Run Total Cost Given by TC

question 5

Multiple Choice

A representative firm with long-run total cost given by TC = 20 + 20q + 5q² operates in a competitive industry where the short-run market demand and supply curves are given by Q_D = 1,400 - 40P and Q_S = -400 + 20P.If it continues to operate in the long run,its profit-maximizing level of output is:

• A) 1 unit.
• B) 2 units.
• C) 4 units.
• D) 5 units.
• E) 6 units.

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Definitions:

Price Elasticity

Price elasticity measures how the quantity demanded of a good is affected by a change in its price, with high elasticity indicating sensitivity to price changes.

Demand

The quantity of a good or service that consumers are willing and able to purchase at a given price over a specified period.

Elastic

Describes a situation where the quantity demanded or supplied of a good is sensitive to changes in its price.

Current Margin

The existing difference between a company's sales and its variable costs, indicating the portion of sales revenue that covers fixed costs and profits.