Problem
A competitive firm sells its product at a price of $0.10 per unit. Its total and marginal cost functions are:
TC = 5 - 0.5Q + 0.001Q2
MC = -0.5 + 0.002Q,
where TC is total cost ($) and Q is output rate (units per time period).
• Determine the output rate that maximizes profit or minimizes losses in the short term.
• 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.