Question

Guthrie Medical has a total cost function TC(q) = 100 + 50q + 10q^2, so that the marginal cost is MC(q) = 50 +20q. The price of medical care is currently P=90.

What is the quantity that Guthrie Medical will choose to produce?

At that quantity, what is the average total and average variable cost for Guthrie? (Hint: ATC(q) = TC(q)/q)

Can Guthrie operate in that market in the long term? What about the short term?

Guthrie would like to know what the lowest break even long-term price is for them. How would you go about advising them on it based on the information you have in this problem?

Answer #1

Q |
TC |
MC |
MR |
TFC |
TVC |
ATC |
AVC |

0 |
100 |
50 |
90 |
100 |
0 |
||

1 |
160 |
70 |
90 |
100 |
60 |
160 |
60 |

2 |
240 |
90 |
90 |
100 |
140 |
120 |
70 |

3 |
340 |
110 |
90 |
100 |
240 |
113 |
80 |

4 |
460 |
130 |
90 |
100 |
360 |
115 |
90 |

1.

He would choose to produce Q= 2 as MC=MR

2. ATC = 120 and TC = 240

3. No he cannot operate in the long run as he would run into losses. But in short run he is able to cover the variable cost so he can run in short run.

4. Break even is where TR-TC= 0

The formula to calculate the breakeven pricing is,

= (Fixed cost/ no of desired units) + unit variable cost

= (100/2)+60 =110

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A firm's long-run total cost curve is TC(Q) = 40Q - 10Q^2 +
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.

A perfectly competitive firm has the following total cost and
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TC = 100 +
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MC =
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a) For quantities
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b) For quantities
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c) Assume P (MR)
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2a. If a monopoly controls the market, calculate the equilibrium
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TC= 20q+ q^2
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B. At this level of ouput, what is ATC? What
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C. At what output level is ATC at its minimum?

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a What is the profit-maximizing output and price for the perfect
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c What is the profit-maximizing output and price for the
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a) What will be the total profit that this rm
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b) What would be the profit of this rm if it
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c) What would be the long run equilibrium price
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