Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

YOU MUST SHOW YOUR WORK 2. Suppose the estimated market demand and market supply curves for a perfectly competitive industry are as follows: Qd: 25,000

YOU MUST SHOW YOUR WORK 2. Suppose the estimated market demand and market supply curves for a perfectly competitive industry are as follows:

Qd: 25,000 - 5,000P + 25M

Qs: 240,000 + 5,000P - 2,000P1 where P is price, M is income, and P1 is the price of a key input. The forecasts for the next year are M = $9,000 and P1= $20. Average variable cost for the typical perfectly competitive firm is estimated to be: AVC= 14- 0.008Q+0.000002Q^2 and Fixed Costs = $6000. a. Find the profit maximizing quantity for this firm at the market price, and calculate profits at the profit maximizing output. b. Should this firm shut down? Explain your answer in words and justify using numbers. c. Depict this result in a graph. Clearly label your ATC, AVC, MC curves and the market price that this firm faces. Depict your profit maximizing output and show the profit/loss that occurs at this output.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Rethinking Macroeconomics

Authors: John F McDonald

2nd Edition

1000434699, 9781000434699

More Books

Students also viewed these Economics questions

Question

8. What are the costs of collecting the information?

Answered: 1 week ago

Question

1. Build trust and share information with others.

Answered: 1 week ago