Suppose you have the following information: QD = 20 - 10P + 8M (Market Demand) Q

Question

Suppose you have the following information:

QD = 20 - 10P + 8M (Market Demand)
QS = 120 + 10P - 4PI (Market Supply)

Assume M (Income) = 60, PI (Price of an input) = 5

Find P* (Market Equilibrium Price)

Assume a firm's average variable cost function has been estimated to be: AVC = 20 - 6q + q2 and that its TFC is 50

Answer the following questions for the firm that is part of this perfectly competitive industry:

4.) Find the minimum value of AVC
5.) Find the firm's profit-maximizing output level
6.) Determine TVC at the profit-maximizing output level

Explanation / Answer

Qd = 20 - 10P +480 = 500 - 10P

Qs = 120 + 10P - 20 = 100 + 10P

P* = 20 (At equillibrium Qd = Qs)

4)

AVC is minimum when d(AVC)/dq = 0

-6 + 2q = 0 , q = 3

AVC = 20 - 18 + 9 = 11

5)

TC = TFC + AVC x q = 50 + 20q -6q2 + q3

MC = d(TC)/dq = 20 - 12q + 3q2

Profit is maximized when MC = P

20 - 12q + 3q2 = 20

q = 4

6)

TVC = AVC x 4 = 80 - 96 + 16 x 4 = 48

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

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