Q: If a competitive firm has TC=q3/3+25 and faces a market price of Pe=49, what is the firm's maximum profit?
A: The first step is to determine the optimal quantity which is where
Since the firm is competitive MR=Pe=49.
Therefore the optimal q is where q2=49, which is q=7.
Profits =TR-TC=PQ-TC=49*7-(73/3+25) = 203.67.
The last step is to make sure that the firm prefers operating to shutting
down and paying the fixed cost.
In this case, the firm prefers to produce since profit>-FC=-25