Please explain how to find if the firm with be earing a positive, negatice, or z

Question

Please explain how to find if the firm with be earing a positive, negatice, or zero profit in the short run by doing out the math.

Exercise 5 Suppose that a competitive firm's marginal cost of producing output q (MC) is given by MC(q) = 6 + 2q Assume that the market price (P) of the firm's product is $18. What level of output (q) will the firm produce? The firm will produce 6.00 units of output. (Enter your response rounded to two decimal places.) What is the firm's producer surplus? Producer surplus (PS) is $36.00. (Enter your response rounded to two decimal places.) Suppose that the average variable cost of the firm (AVC) is given by AVC(q) = 6 + 1q. Suppose that the firm's fixed costs (FC) are known to be $30. Will the firm be earning a positive, negative, or zero profit in the short run? In the short run, the firm's profit will be positive

Explanation / Answer

Answer a : MC =6+2q

P =$18

TR =18q

MR= 18

MC =MR (Profit maximisation point)

18=6+2q

12=2q

here q =6 units

To calculate producer surplus =1/2*Base *Height

Producer surplus = 1/2*6*(18-6)

Producer surplus = $36

Now the firm profit in short run as optiumal quantity is 6 units sold at $18 than Total revenue is equal to $108

Here inshort run only variable cost has been determined as in this problem AVC = $12 and total variable cost is $72

So, the difference between total revenue minus total cost is profit

Here, in short run fixed cost is not taken into account

Profit = $108- $72 =$36

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