In the market for lock washers, a perfectly competitive market, the current equilibrium price is $5 per box. Washer King, one of the many producers of washers, has a daily short-run total cost given by TC = 190 + 0.20Q + 0.0025Q², where Q measures boxes of washers. Washer King's corresponding marginal cost is MC = 0.20 + 0.005Q. How many boxes of washers should Washer King produce per day to maximize profit?

Question

Quizplus · Accepted Answer

To maximize profit in a perfectly competitive market, Washer King should produce where price equals marginal cost (P = MC). Given P = $5 and MC = 0.20 + 0.005Q, set 5 = 0.20 + 0.005Q and solve for Q, which gives Q = 960.

In the Market for Lock Washers, a Perfectly Competitive Market