A perfectly competitive firm has the cost function TC = 1000 + 2Q + 0.1 Q2. What is the lowest price at which this firm can break even?
What will be an ideal response?
MC = 2 + 0.2Q
AC = (1000/Q) + 2 + 0.1Q
Set MC = AC. for minimum AC, or 2 + 0.2Q = (1000/Q) + 2 + 0.1Q, or Q = 100, and at that point, AC = $22. This is the lowest price at which the firm can break even.
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