A company manufacturing medical personal protective equipment (PPE) in your province is regulated by the provincial government. The firm has total assets of $500,000. The revenue function for its output has been estimated as: R (Q) = 250Q – $0.15Q2. The cost function is estimated as: TC = $25,000 + $10Q a. If the company were unregulated, what price would it charge, what output would it produce, what would its profit be, and what rate of return would it earn over its assets? What will be its marginal revenue at the unregulated price? (Note: You can obtain the inverse demand equation from the revenue function realizing that price equals revenue (R (Q) per unit).
A company manufacturing medical personal protective equipment (PPE) in your province is regulated by the provincial government. The firm has total assets of $500,000. The revenue function for its output has been estimated as:
R (Q) = 250Q – $0.15Q2. The cost function is estimated as:
TC = $25,000 + $10Q
a. If the company were unregulated, what
would it produce, what would its profit be, and what
b. Thefirmhasproposedchargingapriceof$100foreachunitofoutput.Ifthis price is charged, what will be the total profits and the rate of return earned on the firm’s asset base?
c. The government has ordered the firm to charge a price that will provide the firm no more than a 10 percent return on its assets. What price should the firm charge, what output will be produced, and what dollar level of profits will be earned?
d. Using your results in part ‘a’ above, calculate the price elasticity of demand for this firm’s product. Based on this result, calculate the marginal revenue and verify if you get the same result as you obtained in part ‘a’.
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