A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results: Qd = 25,000 5,000P+ 25M Qs = 240,000 + 5,000P-2,000P1 where P is price, M is income, and P₁ is the price of a key input. The forecasts for the next year are M= $15,000 and P₁= $20. Average variable cost is estimated to be AVC=14-0.008Q + 0.000002Q² Total fixed cost will be $6,000 next year. Suppose income next year is forecasted to be $10,000 instead. What is the profit- maximizing output choice for the firm?
A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results: Qd = 25,000 5,000P+ 25M Qs = 240,000 + 5,000P-2,000P1 where P is price, M is income, and P₁ is the price of a key input. The forecasts for the next year are M= $15,000 and P₁= $20. Average variable cost is estimated to be AVC=14-0.008Q + 0.000002Q² Total fixed cost will be $6,000 next year. Suppose income next year is forecasted to be $10,000 instead. What is the profit- maximizing output choice for the firm?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following
results:
Qd = 25,000 - 5,000P+ 25M
Qs = 240,000 + 5,000P-2,000P1
where P is price, M is income, and P₁ is the price of a key input. The forecasts for the next year are M = $15,000 and P₁=
$20. Average variable cost is estimated to be
AVC=14-0.008Q + 0.000002Q²
Total fixed cost will be $6,000 next year. Suppose income next year is forecasted to be $10,000 instead. What is the profit-
maximizing output choice for the firm?
Multiple Choice
8,000
5,548
3,480
2,167
zero
O
O
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