Determining profit-maximizing output level-economic profit

Reference no: EM1371679

The hair stylist, LTD., is popular-priced hairstyling salon in College Park, Maryland. Given large number of competitors, the fact that stylist routinely tailor services to meet customer needs, and the lack of entry barriers, it is reasonable to suppose that the market is perfectly competitive and that the average $ 40 price equals marginal revenue, P=MR=$40. Furthermore, assume that the firms operating expenses are typical of the 100 firms in the local market and can be expressed by the following total and marginal cost functions.

TC= $5,625 + $ 25Q + $0.01Q^2
MC= $25 + $0.02Q

Where TC is total cost per month including capital cost, MC is marginal cost, and Q is the number of hairstylings provided. Total costs include a normal profit.

A. Compute the firms profit-maximizing output level.

B. Compuote the firms economic profits at this activity level. Is this activity level sustainable in the long run?

Reference no: EM1371679

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