QUESTION SEVEN The average total cost of producing a commodity is given by ATC = 1000'g + 100 - Sq+q° where p is the price in shillings and q is the quantity in kilogrammes. The expected sales of commodity are 390 units at the selling price of Sh. 10 and the sales would fall to 380 units if the price is doubled to Sh 20. Required a) By using an example, explain what 1000/q in the ATC equation represents economically. b) Determine the linear demand function in the form p= a+ bq where p=price and q = quantity. c) Determine the revenue function. d) Determine the profit function, output and price for maximum profit and the maximum profit. Show that it is a maximum point. e) Determine point elasticity of demand at the point of maximum profit and interpret it.
QUESTION SEVEN The average total cost of producing a commodity is given by ATC = 1000'g + 100 - Sq+q° where p is the price in shillings and q is the quantity in kilogrammes. The expected sales of commodity are 390 units at the selling price of Sh. 10 and the sales would fall to 380 units if the price is doubled to Sh 20. Required a) By using an example, explain what 1000/q in the ATC equation represents economically. b) Determine the linear demand function in the form p= a+ bq where p=price and q = quantity. c) Determine the revenue function. d) Determine the profit function, output and price for maximum profit and the maximum profit. Show that it is a maximum point. e) Determine point elasticity of demand at the point of maximum profit and interpret it.
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter18: The Markets For The Factor Of Production
Section: Chapter Questions
Problem 5PA
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