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Use the following situation to answer questions 4 through 9: 4. Suppose that the

ID: 1114939 • Letter: U

Question

Use the following situation to answer questions 4 through 9: 4. Suppose that the Incom Starfighter Facility is but one of many producing Starfighters for the different factions found in the Star Wars Universe (thus, making the Starfighter market perfectly competitive). The market demand and supply curves are given by: PDemand = 500-Q Psupply = 50 + Q If the total and marginal cost functions for the Incom facility are given by: MC = 50 + 25Q TC = 500 + 12.50° + 1012.5 This means that the Incom company will produce each at a price of profits. Starfighters long-run earning

Explanation / Answer

4) MArket demand = P = 500-Q

MR = 500 - 2Q

MC = 50+25Q

profit maximizing output is MR = MC
500 -2Q = 50+25Q

27Q = 450

Q = 17

P = 500 - 17 = $483

profits = TR - TC

profits = 8211 - ( 50(17) +12.5(17)2 -1012.5

profits = 2736

4) market consumer surplus = 1/2 * (500-483) *17 = $144.5

producer surplus = 1/2 ( 483 - 50) *17 = $3680.5