1.

A company that works in a perfectly competitive market has a total cost function:

CT=Q 3 -36Q 2 +540Q+600,

The supply and demand functions in this market are:

Q 0 =5P-500 , Q d =4000-10P
a) Calculate what quantity you will produce to maximize profits and find the
profit.
b) Graphically represent the equilibrium of the market and the company.

Alone)

In perfect competition:

P=CMg………………(1)

Q0=Qd

5P-500 =4000-10P

P=300

In (1): 300=3Q 2 -72Q+540 Q 2 -24Q+80=0

Q1 =20, Q2 =4

To maximize profits we evaluate that D Q (CT)´=2Q-24 must be increasing then,

We replace the values: 2*20-24 >0

2.4-24<0

Then the value that maximizes is Q 1 =20

The benefit is: B=IT-CT IT=P*Q=300Q

B=300*20-(20 3 -36*20 2 +540*20+600)=1000 um

Sun: b)

 To obtain market equilibrium we find the equilibrium price and quantity

We have P=300, we substitute Q=4000-10*300=1000 into the demand function

EITHER

300

1000

 To obtain the balance of the company we calculate the average variable cost

CT/Q =CTMe = Q 2 -36Q+540+600/Q

We evaluate at Q=20, then CTMe= 20 2 -36*20+540+600/20 =250

C'

CTMe

CVMe
300
CVme

250

CVme The profit represents the shaded

area

20