Consider a firm with a total cost function of

The firm is a price taker at an amount of $300/unit and is in a purely competitive market.

a. Find the optimal level of output for this firm, and its profit at that level of output. (15 points)

b. Explain what will happen to the shareholders wealth (measured by stock price) if the firm’s cash flows are -$6000 indefinitely. Your answer should include a discussion of the efficient allocation of resources and secondary market functions. (5 points)

Question

Consider a firm with a total cost function of 
		 
The firm is a price taker at an amount of $300/unit and is in a purely competitive market.

a.	Find the optimal level of output for this firm, and its profit at that level of output.  (15 points)

b.	Explain what will happen to the shareholders wealth (measured by stock price) if the firm’s cash flows are -$6000 indefinitely.  Your answer should include a discussion of the efficient allocation of resources and secondary market functions. (5 points)