Mary\'s Fence Post Factory faces a perfectly elastic demand curve for fence post
ID: 1179506 • Letter: M
Question
Mary's Fence Post Factory faces a perfectly elastic demand curve for fence posts at a price of $39 per post. Let Q represent the number of fence posts that Mary makes. Mary's total cost and marginal cost curves for making fence posts are:
TC = 4,000 + 3Q + 0.1Q^2
MC = 3 + 0.2Q
Graph Mary's marginal cost curve using the orange line (square points) and her marginal revenue curve using the blue line (circle points). Place a green point (triangle symbol) at the price and quantity at which Mary would maximize short-run profits.
The graph has a price of 0 -50 on the y-axis and quantity 0-200 for the x-axis.
Explanation / Answer
Question 1
AC = TC/Q = 4000/Q + 3 + 0.1Q
AC(100) = 53
Question 2
Set MC = MR
3 + 0.2Q = 39
Q = 180 units
If she avoids fixed costs, then TC for 180 units is
3(180) + 0.1(180)