The Green Company produces chemicals in a perfectly competitive market. The current market price is $40; the firm’s total cost is C = 100 + 4Q + Q2.
a. Determine the firm’s profit-maximizing output. More generally, write down the equation for the firm’s supply curve in terms of price P.
b. Complying with more stringent environmental regulations increases the firm’s fixed cost from 100 to 144. Would this affect the firm’s output? Its supply curve?
c. How would the increase in fixed costs affect the market’s long-run equilibrium price? The number of firms? (Assume that Green’s costs are typical in the market.)