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    Question

    A perfectly competitive firm was given, P = 60 and TC = Q2 + 8Q + 10. Now price decreases to 54, what is the change in profit?

    A -127 Correct Answer Incorrect Answer
    B -57 Correct Answer Incorrect Answer
    C +147 Correct Answer Incorrect Answer
    D -147 Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    MC = 2Q + 8 For perfect competition, P = MC So, 2Q + 8 = 60 Q = 52/2 = 26 Profit = (60*26) – (262 + 8*26 + 10) = 1560 – (676 + 208 + 10) = 666 Now, P decreases to 54; So, 2Q + 8 = 54 Q = 23 Profit = (54*23) – (232 + 8*23 + 10) = 1242 – (529 + 184 + 10) = 519 Change in profit = 519 – 666 = -147 Decreases by 147

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