Easy-Flo, Inc. supplies standard black printing ink to the nation's offset printing market. Like the output of its competitors, Easy-Flo's ink must meet strict specifications. As a result, the ink supply industry can be regarded as perfectly competitive. Total and marginal cost relations per week for Easy-Flo are:
TC = 2,500 + 5Q + 0.1Q2
MC = 5 + 0.2Q
a. Where Q is the number of barrels of ink produced.
b. Calculate Easy-Flo's optimal output and profits if ink prices are stable at $55 per barrel.
c. Calculate Easy-Flo's optimal output and profits if ink prices rise to $65 each.
d. If Easy-Flo is typical of firms in the industry, calculate the firm's equilibrium output, price and profit levels.