a. A company in a competitive industry has a total cost function and the marginal cost functions as given below.
TC = 50 + 4q +2q2
MC = 4 +4q
This firm produce 5 units of output at the given market price of $20.
You are required to answer the following questions;
i. Calculate the current level of profit
ii. Should firm continue with the current level of output in the long run or not (is the current level of output is profit maximizing output level?). If not decide the quantity of output the firm should produce in the long run and comment whether firm should stay or exit the industry.
b. Discuss the use of import quota and tariff as method to limit imports. Justify the most preferable method based on the pros and cons associated with these methods?
