Hello! I just want to ask for help whether the answers in the given pictures are correct. If it's not, please help me solve it. Please refer to the given pictures below. Please do not handwritten your answers. |SITUATION/PROBLEM: Given: TC = 800 + 10g + 1.5g²; Price = 100 |a. Identify the output level (q*) that will maximize the profit of the firm. |b. Calculate the firm's profit. |c. If Price falls to 40, Identify the new profit maximizing output level. |d. Assess if the firm gaining profits or incurring losses and how much. |e. Justify why the firm should continue to produce at this price or not. a. The firm maximizes profit by producing at P=MC as price is fixed at 100TC= 800 + 10q + 1.5q24MC = d(TC)/dq = 10 + 3qP= MC100 = 10 + 3q90 = 3qq= 30q* = 30b. TC= 800 + 10*30 + 1.5(30)2 = 2450TR= Pq= 100*30= 3000profit= TR - TC= 3000 - 2450= 550c. Price falls to 40P= 40P=MC40 = 10 + 3qq= 30/3= 10New profit maximizing output level = 10 (d).To find whether the firm is gaining profit or loss the quantity from part (c) is needed.Note: since you have clearly asked for parts d and e l am not providing the solution for part (c).New profit-maximizing output level = 10Let us find the average cost at q=10.AC =TC800+10g+1.5g?AC =800AC =+ 10 + 1. 5qAt q = 10 the value of AC is given below :AC =+ 10 + 1.5 x 10AC = 80 + 10 + 15AC = $105At q=10 the price is less than the average cost (40<105) thus the firm is incurring losses.Loss = (AC – P) x qLoss = (105 – 40) x 10Loss = 65 x 10Loss = $650The firm is earning a loss of $650.Step 2(e).If the price is greater than the average variable cost at q=10 then the firm should continue producingotherwise the firm should shut down.Varibale cost (VC) = TC - Fixed cos tnote : fixed cos t = 800VC = 800 + 10g + 1.5q? – 800VC = 10g + 1.5q²Now,Average variable cos t (AVC) =10q+1.54AVC =AVC = 10 + 1. 5qAt q = 10 the AVC is given as :AVC = 10 + 1. 5 x 10AVC = 10 + 15AVC = $25Since the price is greater than AVC (40>25) the firm is still able to cover its variable cost. Thusthe firm will continue production.

In the given question Total cost is TC = 800 + 10q+ 1.5q2 And price = 100 In this cost function…

Answered: Hello! I just want to ask for help…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Hello! I just want to ask for help whether the answers in the given pictures are correct. If it's not, please help me solve it. Please refer to the given pictures below. Please do not handwritten your answers. | SITUATION/PROBLEM: Given: TC = 800 + 10g + 1.5g²; Price = 100 | a. Identify the output level (q*) that will maximize the profit of the firm. | b. Calculate the firm's profit. | c. If Price falls to 40, Identify the new profit maximizing output level. | d. Assess if the firm gaining profits or incurring losses and how much. | e. Justify why the firm should continue to produce at this price or not.

a. The firm maximizes profit by producing at P=MC as price is fixed at 100
TC= 800 + 10q + 1.5q24
MC = d(TC)/dq = 10 + 3q
P= MC
100 = 10 + 3q
90 = 3q
q= 30
q* = 30
b. TC= 800 + 10*30 + 1.5(30)2 = 2450
TR= Pq= 100*30= 3000
profit= TR - TC
= 3000 - 2450
= 550
c. Price falls to 40
P= 40
P=MC
40 = 10 + 3q
q= 30/3= 10
New profit maximizing output level = 10

(d).
To find whether the firm is gaining profit or loss the quantity from part (c) is needed.
Note: since you have clearly asked for parts d and e l am not providing the solution for part (c).
New profit-maximizing output level = 10
Let us find the average cost at q=10.
AC =
TC
800+10g+1.5g?
AC =
800
AC =
+ 10 + 1. 5q
At q = 10 the value of AC is given below :
AC =
+ 10 + 1.5 x 10
AC = 80 + 10 + 15
AC = $105
At q=10 the price is less than the average cost (40<105) thus the firm is incurring losses.
Loss = (AC – P) x q
Loss = (105 – 40) x 10
Loss = 65 x 10
Loss = $650
The firm is earning a loss of $650.
Step 2
(e).
If the price is greater than the average variable cost at q=10 then the firm should continue producing
otherwise the firm should shut down.
Varibale cost (VC) = TC - Fixed cos t
note : fixed cos t = 800
VC = 800 + 10g + 1.5q? – 800
VC = 10g + 1.5q²
Now,
Average variable cos t (AVC) =
10q+1.54
AVC =
AVC = 10 + 1. 5q
At q = 10 the AVC is given as :
AVC = 10 + 1. 5 x 10
AVC = 10 + 15
AVC = $25
Since the price is greater than AVC (40>25) the firm is still able to cover its variable cost. Thus
the firm will continue production.

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