QUESTION SEVEN The average total cost of producing a commodity is given by ATC = 1000'g + 100 - Sq+q° where p is the price in shillings and q is the quantity in kilogrammes. The expected sales of commodity are 390 units at the selling price of Sh. 10 and the sales would fall to 380 units if the price is doubled to Sh 20. Required a) By using an example, explain what 1000/q in the ATC equation represents economically. b) Determine the linear demand function in the form p= a+ bq where p=price and q = quantity. c) Determine the revenue function. d) Determine the profit function, output and price for maximum profit and the maximum profit. Show that it is a maximum point. e) Determine point elasticity of demand at the point of maximum profit and interpret it.
QUESTION SEVEN The average total cost of producing a commodity is given by ATC = 1000'g + 100 - Sq+q° where p is the price in shillings and q is the quantity in kilogrammes. The expected sales of commodity are 390 units at the selling price of Sh. 10 and the sales would fall to 380 units if the price is doubled to Sh 20. Required a) By using an example, explain what 1000/q in the ATC equation represents economically. b) Determine the linear demand function in the form p= a+ bq where p=price and q = quantity. c) Determine the revenue function. d) Determine the profit function, output and price for maximum profit and the maximum profit. Show that it is a maximum point. e) Determine point elasticity of demand at the point of maximum profit and interpret it.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter7: Production, Costs, And Industry Structure
Section: Chapter Questions
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QUESTION SEVEN
The average total cost of producing a commodity is given by
ATC = 1000/q + 100 – 5q + q
where p is the price in shillings and q is the quantity in kilogrammes. The
expected sales of commodity are 390 units at the selling price of Sh. 10 and the
sales would fall to 380 units if the price is doubled to Sh.20
Required
a) By using an example, explain what 1000/q in the ATC equation represents
economically
b) Determine the linear demand function in the form p= a + bq where p= price
and q = quantity
c) Determine the revenue function.
d) Determine the profit function, output and price for maximum profit and the
maximum profit. Show that it is a maximum point.
e) Determine point elasticity of demand at the point of maximum profit and
interpret it
4/4
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Transcribed Image Text:2:59 E d © & •
---Today, 11:42 AM
Image
Text
QUESTION SEVEN
The average total cost of producing a commodity is given by
ATC = 1000/q + 100 – 5q + q
where p is the price in shillings and q is the quantity in kilogrammes. The
expected sales of commodity are 390 units at the selling price of Sh. 10 and the
sales would fall to 380 units if the price is doubled to Sh.20
Required
a) By using an example, explain what 1000/q in the ATC equation represents
economically
b) Determine the linear demand function in the form p= a + bq where p= price
and q = quantity
c) Determine the revenue function.
d) Determine the profit function, output and price for maximum profit and the
maximum profit. Show that it is a maximum point.
e) Determine point elasticity of demand at the point of maximum profit and
interpret it
4/4
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