Assignment module 6 PDF

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If the market demand and supply functions for Beta Industries manufactures floppy disks that consumers perceive as identical to those produced by numerous other manufacturers. Recently, Beta hired an econometrician to estimate its cost function for producing boxes of one dozen floppy disks. The esti...

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1. If the market demand and supply functions for Beta Industries manufactures floppy disks that consumers perceive as identical to those produced by numerous other manufacturers. Recently, Beta hired an econometrician to estimate its cost function for producing boxes of one dozen floppy disks. The estimated cost function is C = 20 + 2Q2 . a) What are the firm's fixed costs? The firm’s fixed cost is 20. b) What is the firm's marginal cost? Now suppose other firms in the market sell the product at a price of P10. MC(Q) = a +2bQ + 3cQ2 MC(Q) = 0 + 2(2)(Q) + 3(0)(Q2) MC(Q) = 4Q c) How much should this firm charge for the product? Beta Industries should charge P10 for their floppy disks since consumers perceive their product as identical to those produced by numerous other manufacturers. They are operating in a perfectly competitive market. d) What is the optimal level of output to maximize profits? To maximize profits, the price of the product must be equated with the marginal cost: P = MC (Q) 10 = 4Q Q = 2.5 units The optimal level of output is 2.5 units of floppy disks. e) How much profit will be earned? π =PQ−C (Q ) π =( 10 ) ( 2.5 )−20+2(2.52 )(2.5) π =25 −20+31.25 π =36.2 5 f) In the long run, should this firm continue to operate or shut down? Why? The firm is...