Question

# Guthrie Medical has a total cost function TC(q) = 100 + 50q + 10q^2, so that...

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?

 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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