Question
2. (20 total points) Suppose that, assuming a firm decides to produce a product, it must build a production facility. The fixed cost of this
2. (20 total points) Suppose that, assuming a firm decides to produce a product, it must build a production facility. The fixed cost of this facility is F = 60. Also, the firm has constant marginal cost, MC = 5. Demand for the product that the firm produces is given by P = 30-5q
Suppose the government decides to set the price of the good equal to marginal cost, and subsidize the firm in order to get the firm to produce enough output to satisfy the market at that price.
c) (4 points) How much should the subsidy be in order to allow the firm to make exactly zero profit?
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