Mailings Review View :-\' 1,\'\'E\'.EMI. +1 AaBbCcDdEe A Normal Suppose that the
ID: 1115275 • Letter: M
Question
Mailings Review View :-' 1,''E'.EMI. +1 AaBbCcDdEe A Normal Suppose that the manager of a firm operating in a competitive market has estimated the firm's average variable cost function to be AVC=5-0025Q+00000502 Total fixed cost is $5,000. a. What is the corresponding marginal cost function? (a) Calculate MC 5-0.05Q+0.00015Q. b. At what output is AVC at its minimum? AVC is at its minimum when it is equal to MC. AVC = MC 5- 0.0250+0.00005Q-5-0.05Q 0.00015Q Q 250 AVC minimum is 250 units c. What is the minimum value for AVC? AVC·5-0.025Q + 0.00005Q'·5-(0.025.250) + 10.000050250). 5 . 6.25 + 3.125·1.875 If the forecasted price of the firm's output is $10 per unit: d. How much output will the firm produce in the short run? P MC 10-5-0.05Q+0.000150 15Q-5,0000-500,000 0 Q 413.87 e. How much profit (loss) will the firm earn? If the forecasted price is $1.52 per unit: f How much output will the firm produce in the short run? g. How much profit (loss) will the firm earn?Explanation / Answer
Part a, b, and c are done correctly
part d) Price = MC
10 = 5 - 0.05Q + 0.00015Q^2
This gives Q = 413.87
e) Profit = TR - TC
= 413.87*10 - (5*413.87 - 0.025*(413.87^2) + 0.00005*(413.87^3)) = 2807
f) Price is 1.52
P = MC
1.52 = 5 - 0.05Q + 0.00015Q^2
Q = 234.32
Note that price is less than minimum of AVC. Hence there will be no production when price falls below 1.875.
g) No profit or loss when there is no production.