Define economic profit or loss- Microeconomics
Suppose you own a taxi company in New York City. Assume further the taxi industry in NYC is described by a perfectly competitive market structure (ie. the firm is a price taker). Further, the cost structure your firm faces is described by the following equation:
TC = 40 + 6Q + Q2
Where Q = the number of taxi trips. The market price you face P = $36/trip. Note in this problem the taxi company takes the Price, P, as given information. They can sell all the trips they want to at P = $30. Thus, for each additional trip the change in revenues is $36 or the price. That is P = MR.
Note that the profit maximizing rule is find the Q at which MR = MC where MR = dTR/dQ and MC = dTC/dQ.
a. What is the profit maximizing or loss minimizing number of trips, Q? Hint the
profit maximizing output is where MR = MC.
b. What is the Economic profit or loss you are making?
c. What output level is the minimum point for Average Total Costs (ATC)?
d. What output level, Q, and price/trip, P, will economic profits be zero? Note
Economic Profits are zero when P = ATC.
