(30 points) Bow Wow Bazaar (BWB) is a growing firm specializing in gourmet dog f

Question

(30 points) Bow Wow Bazaar (BWB) is a growing firm specializing in gourmet dog food and supplies in Florida resort communities. BWB's demand and cost information are as follows:

            P = 4500 - Q

            MR = 4500 - 2Q

            TC = 150,000 + 400Q   

            MC = $400

where Q is output, P is price in dollars, MR is marginal revenue, TC is total cost and MC is marginal cost. All costs include a normal return of 12% on capital investment.

A.  Determine the profit-maximizing price and output levels, and the profit earned.

B.  Based on your results in Part A and assuming the firm operates in a monopolistically competitive industry, explain what will happen to this industry in the long run?

C.  Determine the output level, price, and profits that will occur in long-run equilibrium. Assume a high-price, low-output scenario assuming a parallel shift of the firm

Explanation / Answer

for maximum profit ..

MR =MC

4500-2Q =400

Q= 2050

hence P =4500-2050 =2450

profit = total revenue -total cost = 4500Q - Q^2 -(150,000 + 400Q) =4052500

.

b.in long run profit will continue to come

c. as Q decreases P increases and profit decreases . as there will be shift from profit optimizing point profit will decrease.. actual values can be calculated if shit in demand curve is given

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.