PakPerfect Inc. estimates equation of its total costs of production as TC = 500 + 10Q + 5Q2 and market demand for its product as Qd = 105 – (1/2) P, where Q is quantity in units and P is price in Pak$. (i) Write the equations of the firm’s costs, as a function of Q (ii) Average Total Cost ATC (iii) Average Variable Cost AVC (iv) Average Fixed Cost AFC a. Given above costs can you determine what will be the firm’s production in Stage 1? What is the breakeven price and breakeven quantity for this firm? b. What is the shutdown price and quantity for this firm? c. Draw the firm’s costs in a graph as per your determination in (a). Label the breakeven and shutdown price and quantity using information in (b) and (c) above. d. Given the market price of Pak$ 50 (i) how many units should the firm produce? (ii) how many firms are competing in this market in short-run? (iii) How many firms will be in the industry in the long-run? e. How do you interpret the profit or loss condition of PakPerfect? Use a two-panel graph of the Market and the Firm, to illustrate the impact if more firms enter the market in the long-run? (Maximum 150 words
PakPerfect Inc. estimates equation of its total costs of production as TC = 500 + 10Q + 5Q2 and market demand for its product as Qd = 105 – (1/2) P, where Q is quantity in units and P is price in Pak$.
(i) Write the equations of the firm’s costs, as a function of Q
(ii)
a. Given above costs can you determine what will be the firm’s production in Stage 1?
What is the breakeven price and breakeven quantity for this firm?
b. What is the shutdown price and quantity for this firm?
c. Draw the firm’s costs in a graph as per your determination in
(a). Label the breakeven and shutdown price and quantity using information in (b) and (c) above.
d. Given the market price of Pak$ 50
(i) how many units should the firm produce?
(ii) how many firms are competing in this market in short-run?
(iii) How many firms will be in the industry in the long-run?
e. How do you interpret the profit or loss condition of PakPerfect? Use a two-panel graph of the Market and the Firm, to illustrate the impact if more firms enter the market in the long-run? (Maximum 150 words)
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