For both problems below, round your final answers to the level of output to the nearest unit since it is not possible to produce a fraction of a unit.
1) The market for Commodity A operates in a perfectly competitive market and the demand curve is defined by:
P = 100 - 0.2QD
The supply curve is defined as:
P = 2 + 0.3QS
Solve for the equilibrium levels of price and quantity that the market will bear.
You are the manager of your firm and you are trying to decide how much output you will be producing. You have total fixed costs of $10 and total variable costs of:
TVC = Q + 0.5Q2
How much of the total market quantity should your firm produce to maximize its profit? How can you confirm that this level is really a maximum and not a minimum?
2) Assume that you work for the same firm above. Your firm has identified a developing country as an area of expansion. There are no current producers of Commodity A in this developing country so your firm will be the sole producer of this product. Assume that the demand curve for Commodity A in this developing economy is the same as the one described above. If your objective is to maximize profit, what will be the level of output you will produce, and what will be the market price for Commodity A. Compare your results from problem 1) above. What accounts for the difference? Who suffers and who benefits from these differences?
For both problems below, round your final answers to the level of output to the nearest unit since it is not possible to produce a fraction of a unit.
1) The market for Commodity A operates in a perfectly competitive market and the demand curve is defined by:
P = 100 - 0.2QD
The supply curve is defined as:
P = 2 + 0.3QS
Solve for the equilibrium levels of price and quantity that the market will bear.
You are the manager of your firm and you are trying to decide how much output you will be producing. You have total fixed costs of $10 and total variable costs of:
TVC = Q + 0.5Q2
How much of the total market quantity should your firm produce to maximize its profit? How can you confirm that this level is really a maximum and not a minimum?
2) Assume that you work for the same firm above. Your firm has identified a developing country as an area of expansion. There are no current producers of Commodity A in this developing country so your firm will be the sole producer of this product. Assume that the demand curve for Commodity A in this developing economy is the same as the one described above. If your objective is to maximize profit, what will be the level of output you will produce, and what will be the market price for Commodity A. Compare your results from problem 1) above. What accounts for the difference? Who suffers and who benefits from these differences?
Related textbook solutions
Related questions
An online software producer has fixed costs of $40,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below. Complete the table (TC, MC, TR, and MR).
| Quantity | TVC | Price |
| 10,000 | $15,000 | $5 |
| 20,000 | $20,000 | $4 |
| 30,000 | $30,000 | $3 |
| 40,000 | $50,000 | $2 |
| 50,000 | $80,000 | $1 |
What should be the output at the profit maximization level?
How much should the firm produce if fixed cost increased to $60000?
