Question

 

Question 1: Your first task is to determine whether your firm is in a competitive industry.

Based on the following demand function for the firm's product, what would you answer?

Q = 50,000 – 25*P

Q is the amount produced and P is the price.

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Submit your Competitive Industry Report and Calculations to the dropbox below. Be sure to show your calculations in Excel and provide a narrative analysis in PowerPoint. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.

Now that you have examined whether your firm is in a competitive industry, let's take a look at some questions related to price, cost, and profit analysis.

Question 2: At the profit-maximizing level, what is the relationship between marginal cost, marginal revenue, price, and average cost for firms in competitive and oligopolistic industries?

The CFO has provided the following information to you:

fixed costs for the MiniZ are $2.75 million

variable cost per unit is $200

She wants you to analyze the fixed and variable costs, optimal level of production, and profit for the MiniZ component.

Question 3: Find Q, P, average cost, and profit for the MiniZ at the profit-maximizing level. (Again, the demand function for the MiniZ is: Q = 50,000 – 25*P.)

Submit your Price, Cost, and Profit Analysis Report and Calculations to the dropbox below. Be sure to show your calculations in Excel and provide a narrative analysis in PowerPoint. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company

Answer 1

Solution 1:

• Answer 2:- At profit maximizing level the marginal revenue is equal to the marginal cost(MR=MC).Moreover a competitive firm will produce until to the point where MC=P.

  Therefore MR=MC=P

  i.e.

  For a profit maximizing function

  Max P(y)-C(y)............eqn1

  P=C'(y)..........1st order condition

  C"(y)>0........2nd order condition

  Hence MC=p

  fixed costs for the MiniZ are $2.75 million

  variable cost per unit is $200

  analyze the fixed and variable costs, an optimal level of production, and profit for the MiniZ component

  Profit=P(y)-C(y)-F            where C(y)-variable cost

                                                       F-fixed cost

  The optimal level will be produce when MC=P

  Answer 3:-Q = 50,000 - 25*P

  P = 2,000 -Q/25

  TC= $2,750,000 +200Q

  TR = 2000Q-Q²/25

  Profit # = (2000Q-Q²/25) - ($2,750,000 +200Q)

  # = 1800Q -Q²/25 - $2,750,000

  d#/dQ = 1800-2Q/25

  0 = 1800 -2Q/25

  2Q = 1800*25

  Q = 22,500

  P =2,000 -22,500/25

  = 2,000 - 900

  P = 1,100

  AC = $2,750,000/Q +200Q/Q

  = $2,750,000/22,500 +200

  = $122.20 + 200

  = $322.20

  profit = 1800*22,500-22,500²/25 - $2,750,000

  =40,500,000 -17,500,00

  = $23,000,000