Exercise 1

XYZ Corporation faces a horizontal demand curve and the market price is given to be $15.

Total variable cost equation for XYZ Corporation is equal to:

TVC = .25Q³- 3Q²+20Q

where Q is quantity in thousands

a) What key concept must be implemented if the firm wants to maximize profits in this market?

b) Which volume of output should XYZ Corporation produce if it wants to maximize profits? Explain why.

Exercise 2

XYZ Corporation operates in a perfectly competitive market. The Corporation's total costs are represented by the equation:

TVC = 20Q³- 60Q²+10Q

where Q is quantity and measured in thousands.

The objective of management is to determine below what price the company should shut down operations.

a) Calculate the shutdown price of operations for Corporation XYZ.