Question
Assume the following inverted demand function of a firm in the short run: P = 20 - Q. Now assume the total cost function of
Assume the following inverted demand function of a firm in the short run: P = 20 - Q. Now assume the total cost function of this firm is : TC = 50 + 32Q - 4Q2
The above cost function yields the MC function as 32- 8Q
(a). Calculate the profit maximizing price and quantity of this firm (Hint: First derive the MR function; then set MR=MC and solve)
(b) Is this firm earning a profit or incurring a loss? What is the amount of short-run profit or loss? Explain fully.
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Managerial Economics and Organizational Architecture
Authors: James Brickley, Jerold Zimmerman, Clifford W. Smith Jr
5th edition
73375829, 978-0073375823
