Bada Bing, Ltd., supplies standard 256 MBRAM chips to the U.S. computer and electronics industry. Like the
Question:
Bada Bing, Ltd., supplies standard 256 MB RAM chips to the U.S. computer and electronics industry. Like the output of its competitors, Bada Bing's chips must meet strict size, shape, and speed specifications. As a result, the chip-supply industry can be regarded as perfectly competitive. The total cost and marginal cost functions for Bada Bing are
TC = $1,000,000 + $20Q + $0.0001Q2
MC = ∂TC/∂Q = $20 + $0.0002Q
where Q is the number of chips produced. Total costs include a normal profit.
A. Calculate Bada Bing's optimal output and profits if chip prices are stable at $60 each.
B. Calculate Bada Bing's optimal output and profits if chip prices fall to $30 each.
C. If Bada Bing is typical of firms in the industry, calculate the firm's long-run equilibrium output, price, and economic profit levels.
Step by Step Answer:
A Because the industry is perfectly competitive P MR 60 ...View the full answer
