Reference no: EM13224517
Inverse Demand: P = 40 - 4Q
Total Cost: C = 10 + Q ^2
Marginal Cost: MC = 2Q
a. Write the equation for the firm's Marginal Revenue (MR).
b. Based on the information about the firm costs, including your answer in part a., fill out the table below. It is okay to have MR and MC at Q = 0.
c. Graph the demand curve, MR, and MC on the same graph, using the above table.
d. Identify the profit maximizing quantity for the firm (Q M), price (P M), Marginal Revenue (MR), and Marginal Cost (MC) at this profit maximizing quantity.
e. Explain in plain English why a smaller quantity than Q M does not maximize profit.
f. Compute the firm's profit from part d.
g. Solve algebraically for the profit maximizing quantity (QM) and price (P M). You should get the same answer as in d.
h. If this was a competitive industry, the resulting quantity would be where P = MC. Solve for the competitive quantity (Q C) and price (P C). Hint: set P = MC to solve for Q, then plug Q into either P or MC equation.
i. Is the price higher when firms have market power or when they do not, based on g. and h.?
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