A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results: 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= $15,000 and P₁= $20. Average variable cost is estimated to be AVC=14-0.008Q + 0.000002Q² Total fixed cost will be $6,000 next year. Suppose income next year is forecasted to be $10,000 instead. What is the profit- maximizing output choice for the firm?

A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results: 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= $15,000 and P₁= $20. Average variable cost is estimated to be AVC=14-0.008Q + 0.000002Q² Total fixed cost will be $6,000 next year. Suppose income next year is forecasted to be $10,000 instead. What is the profit- maximizing output choice for the firm?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter11: Price And Output Determination: Monopoly And Dominant Firms

Section: Chapter Questions

Problem 6E

See similar textbooks

Similar questions

The economic analysis division of Mapco Enterprises has estimated the demand function for its line of weed trimmers as QD=18,000+0.4N350PM+90Ps where N=numberofnewhomescompletedintheprimarymarketarea PM=priceoftheMapcotrimmerPS=priceofitscompetitorsSurefiretrimmer In 2010, 15,000 new homes are expected to be completed in the primary market area. Mapco plans to charge $50 for its trimmer. The Surefire trimmer is expected to sell for $55. What sales are forecasted for 2010 under these conditions? If its competitor cuts the price of the Surefire trimmer to $50, what effect will this have on Mapcos sales? What effect would a 30 percent reduction in the number of new homes completed have on Mapcos sales (ignore the impact of the price cut of the Surefire trimmer)?
Wonopoly and natural resource prices Suppose that a firm is the sole owner of a stock of a natural resource. a. How should the analysis of the maximization of the discounted profits from selling this resource (Equation 17.63 be modified to take this fact into account? b. Suppose that the demand for the resource in question had a constant elasticity form q(t)=a[p(t)]b . How would this change the price dynamics shown in Equation 17.67? c. How would the answer to Problem 17.7 be changed if the entire crude oil supply were owned by a single firm?
KK ltd produces goods for sale. From trend analysis the management accountant established a demand function of the product to be P=40−1.5q, where P is the unit selling price and q is the quantity in thousands. The enterprise has been producing under the cost TC=q2+10q+50, where TC is the total cost in thousands of cedis.Required1. What is the optimal price to maximize profit?2. Determine the maximum profit and the sale revenue at this point.
You are the manager of a firm that sells a “commodity” in a market that resembles perfect competition, and your analytics team estimates that your cost function is C(Q) = 2Q + 2Q2. Unfortunately, due to production lags, you must make your output decision prior to knowing for certain the price that will prevail in the market. You believe that there is a 60 percent chance the market price will be $350 and a 40 percent chance it will be $700. a. Calculate the expected market price. b. What ouptut should you produce in order to maximize expected profits? c. What are your expected profits?
You are the manager of a firm that sells a “commodity” in a market that resembles perfect competition, and your analytics team estimates that your cost function is C(Q) = 2Q + 3Q2. Unfortunately, due to production lags, you must make your output decision prior to knowing for certain the price that will prevail in the market. You believe that there is a 70 percent chance the market price will be $200 and a 30 percent chance it will be $600. a.Calculate the expected market price. b.What ouptut should you produce in order to maximize expected profits? c.What are your expected profits?
You are the marketing manager of the Business Unit (BU) that produces polystyrene (which is an input to making lightweight rigid foam). The current Demand/Supply balance, as measured by the ICIS price, is $800 per ton of polystyrene. The BU has 2 plants and can produce a total of 1800 tons. At full capacity utilization, the BU’s average variable cost equals $1300/t and its average total cost equals $1700/t. Plant 1 has a capacity of 600 tons and a marginal cost of $900/t. Plant 2 has capacity of 1200 tons and a marginal cost of $1500/t. Due to exit of one competitor, you expect next year’s polystyrene ICIS price to increase to $1200. How much volume of polystyrene do you expect to produce next year, ifany? 2.What is your expected contribution margin for nextyear? 3. What is your expected profit for nextyear?
You are the marketing manager of the Business Unit (BU) that produces polystyrene (which is an input to making lightweight rigid foam). The current Demand/Supply balance, as measured by the ICIS price, is $800 per ton of polystyrene. The BU has 2 plants and can produce a total of 1800 tons. At full capacity utilization, the BU’s average variable cost equals $1300/t and its average total cost equals $1700/t.Plant 1 has a capacity of 600 tons and a marginal cost of $900/t. Plant 2 has capacity of 1200 tons and a marginal cost of $1500/t. Due to exit of one competitor, you expect next year’s polystyrene ICIS price to increase to $1200. 1. How much volume of polystyrene do you expect to produce next year, if any? 2. What is your expected contribution margin for next year? 3. What is your expected profit for next year?
Can you answer me as soon as possible , urgentttttt!!!!!!!!!!! Bodyguard Ltd. was established in Hong Kong in 2020. It produces surgical masks sold to retailers, like personal cares stores, in Hong Kong. With its unique Chinese pattern printed on the masks, it also sells good in North America and Canada since 2021. Bodyguard adopts standardized marketing strategy worldwide. Recently, Bodyguard would enter into a contract with a vendor in Vietnam to expand its production capacity. However, Bodyguard’s managers have heard reports that the vendor operates factories with sweatshop conditions, which is not acceptable in Hong Kong. Employment in sweatshops provides a source of income for women in Vietnam, who can earn more wages than in many other jobs, which bring them food, nutrition and education for their children. Sweatshop is a preferred working place of Vietnamese. (c) Explain the TWO approaches in handling ethical dilemma – relativism and normativism. What would be the ethical…
. An electricity producer has a constant marginal cost of production equal to $40 per megawatt. The residual demand for its electricity is given by P (q) = a−bq, where P is the price and q is the quantity of power generated by this producer. The producer knows the slope, b, but he vertical intercept of the residual demand curve, a is unknown. Assume A and B are greater than zero. If you get stuck, you may answer any of the following questions for special case where a = 80 And b = 0.5 for partial credit. (a) What is the marginal revenue, M R(q), for this producer? b) What is the optimal q for this producer? (c) What is the electricity producer’s optimal price? (d) What is the electricity producer’s optimal bid in a uniform price Auction? e) Suppose b is equal to zero. Would the producer have an incentive to submit a bid above its marginal cost? Explain.
Olay’s Cosmetics, Inc., offers a line of cosmetics and perfume products marketed through leading department stores. Product manager John Henry recently raised the suggested retail price on a popular line of mascara from Rs.12 to Rs.15 following increases in the costs of labor and materials. Unfortunately, sales dropped sharply from 17200 to 10000 units per month. In an effort to regain lost sales, manager hired a consultant. The consultant found after investigation that Olays competitors decreased the price of popular line of mascara similar to that sold by Olays from Rs.12 to Rs.10. Consultant suggested that Olay should run a coupon promotion featuring Rs.5 off the new regular price. The promotion was judged to be a success, as it proved to be highly popular with consumers. In the period prior to expiration, coupons were used on 40% of all purchases and monthly sales rose to 16,000 units. Calculate the arc price elasticity implied by the initial response to the Olays price increase.In…
W7 Q5 A paper published in the Harvard Business Review points out a new way to calculate economic profit that could be more appropriate for service firms and other people-intensive companies. Instead of focusing on investment and return on investment, the focus is on employee productivity, in terms of both generating revenues and reducing costs. The approach is to first determine economic profit in the conventional way, except that we ignore taxes, so that economic profit is before tax, as follows: Economic profit = Operating profit − Capital charge Assume the following information for a hotel chain that wishes to adopt the new method. The firm has $100 million in operating profit, has $1 billion in investment, and uses a cost of capital rate of 5%, so the capital charge is $50 million and the economic profit is $50 million. Relevant calculations are contained in Part 1 of the following schedule: Part 1: Economic Profit (in thousands, except cost of capital rate) Revenue…
You are the manager of a firm that sells a “commodity” in a market that resembles perfect competition, and your analytics team estimates that your cost function is C(Q) = 2Q + 2Q2. Unfortunately, due to production lags, you must make your output decision prior to knowing for certain the price that will prevail in the market. You believe that there is a 65 percent chance the market price will be $200 and a 35 percent chance it will be $400. Calculate the expected market price. $ What output should you produce in order to maximize expected profits? units What are your expected profits? $