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) - 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) Use the information given about firms A and B and appropriate diagrams/figures (hint: isoprofit curves, demand curves) to explain how the equilibrium for both firms will change if a rival company increases its prices. Assume demand curves to be linear
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) - 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) Use the information given about firms A and B and appropriate diagrams/figures (hint: isoprofit curves, demand curves) to explain how the equilibrium for both firms will change if a rival company increases its prices. Assume demand curves to be linear
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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)
- 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) Use the information given about firms A and B and appropriate diagrams/figures (hint: isoprofit
curves, demand curves) to explain how the equilibrium for both firms will change if a rival
company increases its prices.
Assume demand curves to be linear](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9e1123ce-277a-456d-a3a0-ab706dee8fde%2F34fd2917-6db1-4090-909c-036a2618b953%2Fjo920mf_processed.png&w=3840&q=75)
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)
- 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) Use the information given about firms A and B and appropriate diagrams/figures (hint: isoprofit
curves, demand curves) to explain how the equilibrium for both firms will change if a rival
company increases its prices.
Assume demand curves to be linear
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