A manufacturer of electronics products is considering entering the telephone equipment business. It estimates that if it were to begin making wireless telephones, its short run cost function would be as follows:

Q (thousands) AVC AC MC

9 41.10 52.21 30.70

10 40.0 50.0 30.10

11 39.1 48.19 30.10

12 38.40 46.73 30.70

13 37.90 45.59 31.90

14 37.60 44.74 33.70

15 37.50 44.17 36.10

16 37.60 43.85 39.10

17 37.90 43.85 39.10

18 38.40 43.96 46.90

19 39.10 44.36 51.70

20 40.0 45.0 57.10

1. Suppose the average wholesale price of a wireless phone is $50. Do you think this company should enter the market? Explain.
2. How much is the profit (loss) earned by this firm at the optimal level of production.
3. Suppose the firm does enter the market and that over time increasing competition causes the prices of phones to fall to $35. How would that affect the firms production levels and profit? Explain.