Suppose that a perfectly competitive firm's AVC curve is given by AVC = WQ, and its marginal cost curve is given by MC = 2WQ, where W is the wage rate. Assume W = 20. At a market price of $3,200, the firm will produce a quantity of ____ to maximize profit.

Question

Quizplus · Accepted Answer

Given the wage rate (W) is 20, the AVC becomes 20Q and the MC becomes 40Q. In a perfectly competitive market, firms maximize profit where price (P) equals marginal cost (MC). Setting P = MC, 3200 = 40Q gives Q = 80.

Suppose That a Perfectly Competitive Firm's AVC Curve Is Given