Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,how much will the individual firm produce?

Question

Quizplus · Accepted Answer

To find the individual firm's optimal production level, we need to set marginal cost equal to price (since firms maximize profit where MR=MC). In this case, we can use the market demand curve to find the price for each firm:

1050 - 50P = QD
1050 - 50P = 1000 - 100Q
10Q + 50P = 50
P = (5 - 0.2Q)

Now we can substitute this into the marginal cost equation to get:

2q + 1 = 5 - 0.2q
2.2q = 4
q = 1.82 (rounded)

Since firms produce in whole units, the firm will produce 5 units (the nearest whole number to 1.82). Therefore, the best choice is (C) 5.

Suppose There Are 100 Firms Each with a Short Run