Perfectly Competitive Equilibrium
Bada Bing, Ltd., supplies standard 128 MB-RAM chips to the U.S. computer and electronics industry. Like the output of its competitors, Bada Bing's chips must meet strict size, shape, and speed specifications. As a result, the chip-supply industry can be regarded as perfectly competitive. The total cost and marginal cost functions for Bada Bing are
TC = $1,000,000 + $20Q + $0.0001Q2:
MC = DTC/DQ = $20 + $0.0002Q
where Q is the number of chips produced.
A. Calculate Bada Bing's optimal output and profits if chip prices are stable at $60 each.
B. Calculate Bada Bing's optimal output and profits if chip prices fall to $30 each.
C. If Bada Bing is typical of firms in the industry, calculate the firm's equilibrium output, price, and profit levels.