Mailings Review View :-\' 1,\'\'E\'.EMI. +1 AaBbCcDdEe A Normal Suppose that the

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.

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