06.07.2022 - 10:51

# The short-run marginal cost of the Ohio Bag Company is 2 Q. Price is $100/bag. The company operates in a competitive industry. Currently, the company is producing 40 units per period. What is the optimal short run output? Calculate the profits that Ohio B Question: The short-run marginal cost of the Ohio Bag Company is 2 Q. Price is$100/bag. The company operates in a competitive industry. Currently, the company is producing 40 units per period. What is the optimal short run output? Calculate the profits that Ohio Bag Company is losing through suboptimal output. Clearly show your calculations and illustrate your answer using a well-labeled graph.

The optimal short run output for the Ohio Bag Company can be found by setting marginal cost equal to marginal revenue. In a perfectly competitive industry, the price is equal to the marginal revenue. Therefore, we can set 2Q = 100 and solve for Q, which gives us Q = 50. So the optimal short run output for Ohio Bag Company is 50 units per period. To calculate the profits that Ohio Bag Company is losing through suboptimal output, we need to determine the difference between the total revenue at 50 units and total variable cost at 50 units, versus the total revenue and total variable cost at 40 units. Total revenue at 50 units = 50 x $100 =$5000 Total variable cost at 50 units = 2 x 50? = $5000 Profit at 50 units =$5000 - $5000 =$0 Total revenue at 40 units = 40 x $100 =$4000 Total variable cost at 40 units = 2 x 40? = $3200 Profit at 40 units =$4000 - $3200 =$800 Therefore, Ohio Bag Company is losing $800 in profits through suboptimal output. The following graph illustrates the situation: ![Ohio Bag Company Graph](https://i.imgur.com/gFhWvyM.png) The blue line represents the marginal cost, which is a straight line with a slope of 2. The green line represents the marginal revenue, which is horizontal and located at the price of$100. The intersection point of marginal cost and marginal revenue represents the optimal output level of 50 units. At any output level below 50, the marginal revenue is greater than the marginal cost, which means that Ohio Bag Company can increase profits by producing more bags. At an output level above 50, the marginal cost is greater than the marginal revenue, which means that Ohio Bag Company would incur losses by producing more bags. The shaded area represents the profits that Ohio Bag Company is losing through suboptimal output.
The optimal short run output for the Ohio Bag Company can be found by setting marginal cost equal to marginal revenue. In a perfectly competitive industry, the price is equal to the marginal revenue. Therefore, we can set 2Q = 100 and solve for Q, which gives us Q = 50. So the optimal short run output for Ohio Bag Company is 50 units per period. To calculate the profits that Ohio Bag Company is losing through suboptimal output, we need to determine the difference between the total revenue at 50 units and total variable cost at 50 units, versus the total revenue and total variable cost at 40 units. Total revenue at 50 units = 50 x $100 =$5000 Total variable cost at 50 units = 2 x 50? = $5000 Profit at 50 units =$5000 - $5000 =$0 Total revenue at 40 units = 40 x $100 =$4000 Total variable cost at 40 units = 2 x 40? = $3200 Profit at 40 units =$4000 - $3200 =$800 Therefore, Ohio Bag Company is losing $800 in profits through suboptimal output. The following graph illustrates the situation: ![Ohio Bag Company Graph](https://i.imgur.com/gFhWvyM.png) The blue line represents the marginal cost, which is a straight line with a slope of 2. The green line represents the marginal revenue, which is horizontal and located at the price of$100. The intersection point of marginal cost and marginal revenue represents the optimal output level of 50 units. At any output level below 50, the marginal revenue is greater than the marginal cost, which means that Ohio Bag Company can increase profits by producing more bags. At an output level above 50, the marginal cost is greater than the marginal revenue, which means that Ohio Bag Company would incur losses by producing more bags. The shaded area represents the profits that Ohio Bag Company is losing through suboptimal output.