Profit Maximization and Producer Surplus:
Show all your work.
1) Consider a competitive market in which the market demand curve for microwave ovens is expressed as:
P = 1000 – 5Q
And the supply of microwave ovens is expressed as:
P = 100 + Q
Where P is the price per unit and Q is the total number of microwave ovens produced per day by all firms in the market. The typical firm in this market has a marginal cost of: MC = 10 + 24q
Where q is the number of microwave ovens produced per day by an individual firm.
Q1. Determine the equilibrium market price and quantity.
Q2. At the equilibrium price computed in (a) above, what is the quantity produced by a typical firm?
Q3. At the equilibrium price computed in (a) above, what is the produced surplus of a typical firm? Hint: note that the firm’s supply curve is conveniently linear.
Q4. If all firms in the market have the same cost structure, how many firms would compete at the equilibrium price computed in (a) above?