Keep in mind that the formula for a firm's cost function is: TC = FC + C(Q) TC → Total Costs: FC → Fixed Costs: C(Q) → Cost of production*Quantity produced → also known as Variable Costs Q2: Firms A and B are two firms supplying products in two separate differentiated goods markets. Equations (1) and (2) give the total cost functions of the two firms: - Firm A: TC = 2Q --- Equation (1) %3D - Firm B: TC = 10 + 2Q --- Equation (2) %3D Each firm has the ability to produce a maximum quantity of 80,000 units in ten batches of 8,000. The cost of production per unit for each firm is $2. Firm B has a fixed cost of $10. (a) Plot isoprofit curves valuing $34,000 and $60,000 for each of the two firms. Can you provide an explanation for any differences that may exist? (b) Use the information given about firms A and B and appropriate diagrams/figures to explain how the equilibrium for both firms will change if a rival company increases its prices. (c) Use the information given about firm A and appropriate diagrams/figures to explain how the equilibrium will change for firm A if it’s cost of production falls by $1

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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This question deals with cost curves and isoprofit curves.
Keep in mind that the formula for a firm's cost function is:
TC = FC + C(Q)
TC → Total Costs:
FC → Fixed Costs:
C(Q) → Cost of production*Quantity produced → also known as Variable Costs
Q2: Firms A and B are two firms supplying products in two separate differentiated goods markets.
Equations (1) and (2) give the total cost functions of the two firms:
- Firm A: TC = 2Q --- Equation (1)
%3D
- Firm B: TC = 10 + 2Q --- Equation (2)
Each firm has the ability to produce a maximum quantity of 80,000 units in ten batches of 8,000.
The cost of production per unit for each firm is $2. Firm B has a fixed cost of $10.
(a) Plot isoprofit curves valuing $34,000 and $60,000 for each of the two firms. Can you provide an
explanation for any differences that may exist?
(b) Use the information given about firms A and B and appropriate diagrams/figures to explain how
the equilibrium for both firms will change if a rival company increases its prices.
(c) Use the information given about firm A and appropriate diagrams/figures to explain how the
equilibrium will change for firm A if it's cost of production falls by $1
Transcribed Image Text:This question deals with cost curves and isoprofit curves. Keep in mind that the formula for a firm's cost function is: TC = FC + C(Q) TC → Total Costs: FC → Fixed Costs: C(Q) → Cost of production*Quantity produced → also known as Variable Costs Q2: Firms A and B are two firms supplying products in two separate differentiated goods markets. Equations (1) and (2) give the total cost functions of the two firms: - Firm A: TC = 2Q --- Equation (1) %3D - Firm B: TC = 10 + 2Q --- Equation (2) Each firm has the ability to produce a maximum quantity of 80,000 units in ten batches of 8,000. The cost of production per unit for each firm is $2. Firm B has a fixed cost of $10. (a) Plot isoprofit curves valuing $34,000 and $60,000 for each of the two firms. Can you provide an explanation for any differences that may exist? (b) Use the information given about firms A and B and appropriate diagrams/figures to explain how the equilibrium for both firms will change if a rival company increases its prices. (c) Use the information given about firm A and appropriate diagrams/figures to explain how the equilibrium will change for firm A if it's cost of production falls by $1
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