A competitive firm sells its product at a price of $.10 per unit. Its total and marginal cost functions are:
TC = 5 0.5Q + 0.001Q2
MC = -0.5 + 0.002Q,
where TC is total cost ($) and Q is output rate (units per time period).
a. Determine the output rate that maximizes profit or minimizes losses in the short term.
b. If input prices increase and cause the cost functions to become
TC = 5 0.10Q + 0.002Q2
MC = -0.10 + 0.004Q,
what will the new equilibrium output rate be? Explain what happened to the profit maximizing output rate when input prices were increased.