Week 4

Problem 1 a) The equilibrium is found when we equate MR=MC To derive MR, derive the inverse demand first P(Q)= 6009/25 â€“ Q/25 TR=P(Q)*Q=Q*6009/25-Q^2/25 MR=6009/25 -2*Q/25

Now derive MC: TC=120+2500*Q-0.25*Q^2 MC= 2500-2*Q*0.25

MR=MC 6009/25 -2*Q/25=2500-2*Q*0.25 Solving for Q, we get Q*=5381, and P*=$25.12

b) Profit = TR-TC= Q*6009/25-Q^2/25 -120+2500*Q-0.25*Q^2 = - 6,078,659

a) As the firm is making a loss, it will likely exit the industry in the following years, unless it can find a way to lower its costs or increase its sales.

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Bus 640 week 4 market structures and pricing decisions applied problems

Published on May 20, 2014

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