CA Foundation · Business Economics · Price Determination in Different Markets
A perfectly competitive firm has total cost TC = 500 + 4Q + Q² (in rupees). The market price is ₹24 per unit. What output maximises its profit?
The profit-maximising output is 10 units. Marginal cost is 4 + 2Q, and a perfectly competitive firm produces where price equals marginal cost. Setting 24 = 4 + 2Q gives Q = 10. The fixed cost of 500 does not affect the marginal condition.
- A5 units
- B10 unitsCorrect
- C20 units
- D12 units
Explanation
MC = d(TC)/dQ = 4 + 2Q. Setting P = MC gives 24 = 4 + 2Q, so Q = 10. Check: 20 units results from mistakenly equating P to 2Q... or ignoring the 4. Using 24 = 2Q gives 12, which omits the constant term 4 in MC.
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