Question
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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started