2= Assume a firm operating under perfectly competitive market structure has a total cost function of TC=72+4Q+2Q^2. If the market price of the product is 26
2.1= Calculate the profit maximizing level of output.
2.2= Calculate the profit level of the firm.
2.3= What must be the market price level for the firm to make a zero profit.
2.1= The profit maximizing level of output can be calculated by setting marginal revenue (MR) equal to marginal cost (MC) and solving for Q. MR = P = 26 and MC = 8Q. Therefore, Q = 3.25.
2.2= The profit level of the firm can be calculated by substituting the profit maximizing level of output (Q = 3.25) into the total cost function. Profit = PQ - TC = 26(3.25) - (72 + 4(3.25) + 2(3.25)^2) = 26 - 86.0625 = -60.0625.
2.3= The market price level for the firm to make a zero profit can be calculated by setting the profit equation equal to zero and solving for P. 0 = PQ - TC = P(3.25) - (72 + 4(3.25) + 2(3.25)^2). Therefore, P = 86.0625/3.25 = 26.5.