TC-a-6Q + 140 Q + 750 (i)What would be the firm\'s fixed cost? How did you kna (
ID: 1127456 • Letter: T
Question
TC-a-6Q + 140 Q + 750 (i)What would be the firm's fixed cost? How did you kna (ii)Find the profit maximizing output for this firm. (aiwhat price will the firm charge for each unit of its outputa (iVJAt what price will the firm shut down? (4)The market for a particular type of tool can be described by the following demand and supply curves. Qd. 200-2 P Qs=-100 + 4P (a)Find the equilibrium price and equilibrium quantity transacted in this market. (b)Suppose the government imposes a sales tax of $0.50 on each unit of commodity sold (i)Determine the price paid by the consumers and the price received by the producers of this product. (ii)Find the equilibrium quantity transacted in this market. (ii)What is the total tax revenue collected by the government? (iv)Briefly comment on the "gainers" and "losers" in the aftermath of the implementation of this policyExplanation / Answer
i) The firm's fixed cost is 750 as it will not change with change in quantity
ii) MC= d(Q-6Q+140Q+750)/dQ = 1-6+140 = 135
Equating price to MC because this is where profit will be maximised
1400-7.5Q = 135
1265= 7.5Q
Q = 168.66 169
III) price = 1400-7.5(169) = 132.5
iv) VC = TC-FC
VC = Q-6Q+140Q
AVC = VC/Q = 1-6+140 = 132.5
The firm will shut down if the price exceeds average variable cost.
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