5.09) You are retired as an economic consultant by a leading Canadian newsprint producer QUEBEC PULP & PAPER INC (QUEPAP). Quepap is engaged, directly and through subsidiaries, in processing, manufacturing and marketing of pulp and paper products in Canada and the USA. Your mandate is to advise the firm's senior management on matters pertaining to pricing, production and long range planning.

You are supplied with product and company data and you are asked to submit a set of recommendations. Based on the data below, submit recommendations to each of the following questions:

Demand function: P = 1,200 - 0.0002Q

Total cost function : TC = 600,000,000 + 400Q

Where P is the price of each ton of newsprint and Q is the quantity of newsprint in tons.

Total equity capital invested : $400,000,000

corporate income tac rate - 50%

Production facilities : 2: Val-d' or, Quebec and white river, Ontario.

a) What price would you recommend QEPAP charge in order to maximize short-run profits? At this price what quantity (Q) will be sold ? Calculate total sales revenue (TR), total cost (TC) and after-tax total profit(loss), as well as unit cost (AC), AFC, AVC and MC. Illustrate graphically using a set of two diagrams (one for total magnitudes, one for unit magnitudes).

b) Assuming no provision for the opportunity cost of the firm's equity capital has been made in the calculation of total costs. What is the firm's after-tax rate of return on equity (ROE) Over the past seven years, the after-tax rate of return on equity in the newsprint industry has averaged 15% per year. What is the firm's after-tax accounting, normal and economic profit(loss) rate ?

c) What price would you recommend QUEPAP charge in order to maximise sales revenues (TR) regardless of its impact on profit or loss ? Based on this price, calculate the quantity to be sold (Q) total revenue (TR) total cost (TC) and total profit or loss, after tax.

d) What is the minimum quantity of newsprint QUEPAP should sell in order to break even ? Produce a graph indicating the company's break/even point ?

e) If the market price for the newsprint falls to $450 a ton, what do you recommeND QUEPAP's management do, shut-down production or continue operations ?

Thanks.