Assume a competitive firm faces a market price of $90, a cost curve of: c =1/3q^3 + 9q + 1,250, and a marginal cost of: mc = q^2 +9.

a. what is the firm's profit maximizing output level? .  (round your answer to two decimalplaces)

b. what is the firms profit maximizing price $ (round to the nearest penny)

c. what is the firms profit $ (round to nearest penny)

d. in the shrort run the firm

Answer and Explanation:

A. Profit maximizing output level

P = MC

$90 = q^2 + 9

q = 9 units

B. At 9 units the profit maximizing price should be $90

C. Profit = TR - TC

            = P x Q - TC

            = $90 x 9 -( 1/3q^3 +9q + 1250)

            = 810 - (1574)

   Loss = 764

D. If the firm's price is greater than its average variable cost then the firm should continue in the short run because of positive contribution margin. However, if the P < AVC then it should stop its operations as it would have negative contribution margin.

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