Question
You have been hired by First Response Pty Ltd, a major supplier of fire protection equipment to provide them with advice on pricing, production and
You have been hired by First Response Pty Ltd, a major supplier of fire protection equipment to provide them with advice on pricing, production and profit maximisation. The company has recently introduced a new line of fire extinguishers that enjoy patent protection. The company CEO has provided the following limited data to assist with you:
The total variable cost function for the new line of extinguishers is given by the following functional form:$500,000 + (x)Q + (y)Q2
The demand for the new line of extinguishers is given by the following function:P = $300-0.001Q
- (a)Using Table 1, the functional form for total variable costs and simultaneous equations, and the demand function provided-calculate total variable cost, total cost, total revenue, total profit, marginal revenue, average cost, marginal cost, and marginal profit for each level of output (Q) an illustrate your answers in a table.(10 marks)
- (b)Show how the profit maximising output, price and profit for this firm can be calculated using marginal analysis and show workings.(4 marks)
- (c)Calculate the optimal profit margin for this firm and show workings.(1 mark)
- (d)What would the competitive price and competitive output level be in this market? Show
- workings.(3 marks)
- (e)Calculate the deadweight loss for the consumer and the producer and the amount of surplus
- transferred from the consumer to the producer and show workings.(4 marks)
- (f)Calculate thenet gain for the producerby being a monopolist as compared to the competitive
- market outcome and show workings(2 marks)
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