Market demand is given as Q_D= 220 - 3P.Market supply is given as Q_S= 3P + 40.Each identical firm has MC = 0.3Q and ATC = 0.2Q.What is a firm's profit

Question

Quizplus · Accepted Answer

First, we need to find the equilibrium price and quantity by setting the market demand equal to market supply:
220 - 3P = 3P + 40
4P = 180
P = 45
Q = 220 - 3(45) = 85
Each firm's output would be Q* = 85/number of firms in the market.

So, for one firm:
TR = P*Q* = 45 * (85/1) = 3825
ATC = 0.2Q* = 0.2(85) = 17
MC = 0.3Q* = 0.3(85) = 25.5
Profit = TR - TC = (P*Q*) - (ATC*Q*) = (45*85) - (17*85) = $300

Therefore, the best choice is D.

Market Demand Is Given as QD = 220 - 3P

Market Demand Is Given as Q_D= 220 - 3P