Let say the demand is Q=40-P

So, the inverse demand curve is P = 40-Q

Total Revenue = Price x Quantity = (40-Q)*Q = 40Q-Q2

Marginal Revenue is ?dQd?? TR = 40-2Q ....we can clearly see that the inverse demand equation and MR equation are same except the Q and 2Q. The 2Q suggests that the intercept of the MR equation on the X axis will be half that of the demand curve.

Say we in case of inverse demand we consider P = 0, then Q = 40. We got a point(40,0) on the X axis and when we consider Q = 0, we get P = 40. We got another point (0,40) on the Y axis.

Similarly for MR the points will be (20,0) in the X axis and (0,40) on the Y axis. We can clearly see that the intercept in the X axis is halved. We have use this concept here for determining the MR curve as Profit maximizing criteria is MR = MC

The lowest price a firm charges at the point where Average Variable Cost (AVC) curve intersects MC curve.

Step-by-step explanation

a)

To maximize the profit the firm will consider the point where MR =MC

So, the price CEU will request is 10cents per KW hour and will produce around 22KW-Hours per day in millions.

b)

Here P* and Q* are the Price an quantity that CEU will charge respectively.

P* = 9 cents per KW Hour (approx.)

Q* = 53 million KW-Hour day

c)

The lowest price will be 6 cents per KW hour and lowest quantity produced will be 39.8 million KW-Hours per day(approx.)

d)

Yes, the objection is valid. Though this is the price(MC=AVC) that a firm can charge without exiting the market, the profit level is negative at this price.

The zero profit situation is where ATC = MC [drawn in the first diagram, below it the firm will be experiencing a loss. A price where MC intersects the AVC indicates the firm is now operating at a cost equal to the Total Fixed Cost and as the Variable costs are not considered in this case there is a negative profit margin or Loss.

My question is regarding this question...

Where is this person coming up with Q = 40-P and I'm not seeing how it's translating to their graph. Also, how is the AVC calculated?

Here are the graphs from my questions as they've changed slightly.

Cents per Kw Hour 30 25 20 10 City Electric Power [CEPl 20 30 40 50 60 T0 KWHours per day in millions 80 90 100 Cents per Kw Hour 30 25 20 10 City Electric Power [CEPl 20 30 40 50 60 T0 KWHours per day in millions 80 90 100