Suppose you are the manager of a watch making firm operating in a competitive market. Your cost of production is given by C = 200 + 2q2, where q is the level of output and C is total cost. (The marginal cost of production is 4q; the fixed cost is $200.)

a. If the price of watches is $100, how many watches should you produce to maximize profit?

b. What will the profit level be?

c. At what minimum price will the firm produce a positive output? :

a) MC = 4q At equilibrium , MR = MC 100 = 4q q = 25 b) TC = 200 2*625 = 1450 Revenue = 2500 Profit = 1050 c) Minimum…

price condition : P = AVC AVC = 2q At q =25 , AVC = 50 Hence , Minimum P = 50