A firm faces the following average revenue(demand) curve:P = 10,000 – Qwhere Q is weekly production and P is price,measured in cents per unit. The firm's cost functionis given by TC = 500Q + 300,000. Assume that thefirm maximises profits and is the only companyselling in the market.a. What is the level of production, price, and totalprofit per week?b. If the government decides to levy a tax of 1,000cents per unit on this product, what will be thenew level of production, price, and profit?c. How does this result change if the governmentdoes not apply the tax and the company decidesto aim for the competitive outcome, given thepotential entry of competitors in the industry?

Average revenue refers to the amount of money earned per individual unit or user. Here, we…

per is given by TC = 500Q + 300,000. Assume that the firm maximises profits and is the only company selling in the market. a. What is the level of production, price, and total profit per week? If +h tax :1 000

per is given by TC = 500Q + 300,000. Assume that the firm maximises profits and is the only company selling in the market. a. What is the level of production, price, and total profit per week? If +h tax :1 000

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.1P: A firm in a perfectly competitive industry has patented a newprocess for making widgets. The new...

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Question

A firm faces the following average revenue
(demand) curve:
P = 10,000 – Q
where Q is weekly production and P is price,
measured in cents per unit. The firm's cost function
is given by TC = 500Q + 300,000. Assume that the
firm maximises profits and is the only company
selling in the market.
a. What is the level of production, price, and total
profit per week?
b. If the government decides to levy a tax of 1,000
cents per unit on this product, what will be the
new level of production, price, and profit?
c. How does this result change if the government
does not apply the tax and the company decides
to aim for the competitive outcome, given the
potential entry of competitors in the industry?

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