Q1: 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 -----------------------------(1) - Firm B TC = 10 + 2Q -------------------------(2) Each firm has the ability to produce a maximum quantity of 80,000 units in ten batches of 8,000. (a) Explain the relationship between the zero-profit curve and the marginal cost curve for the two firms using the quantity schedule of the two firms and the relevant plots of equations (1) and (2). (b) Use the plots in Q 1(a) and plots of isoprofit curves valuing $34,000 and $60,000 for the two firms to identify any differences in the shape of the two firms’ isoprofit curves. Please provide an explanation for any differences that may exist?
Q1: 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 -----------------------------(1)
- Firm B TC = 10 + 2Q -------------------------(2)
Each firm has the ability to produce a maximum quantity of 80,000 units in ten batches of 8,000.
(a) Explain the relationship between the zero-profit curve and the marginal cost curve for the two firms using the quantity schedule of the two firms and the relevant plots of equations (1) and (2).
(b) Use the plots in Q 1(a) and plots of isoprofit curves valuing $34,000 and $60,000 for the two firms to identify any differences in the shape of the two firms’ isoprofit curves. Please provide an explanation for any differences that may exist?
*PLEASE ANSWER PART (B) ONLY WITH DIAGRAMS AND EXPLANATION*
Step by step
Solved in 4 steps with 1 images
