The cost curve for a given competitive company is as follows: CT(Q)=?3 − 30?2 + 250?+10...

The cost curve for a given competitive company is as follows: CT(Q)=?3 − 30?2 + 250?+10

a) Calculate the average total cost, the average variable cost and the marginal cost. (6 points)

b) What is the minimum price at which the company will decide to produce its products? (6 points)

Solutions

Expert Solution

a)TC = Q^3 - 30Q^2 + 250Q +10

ATC = Q^2 - 30Q + 250 + 10/Q

TFC = 10 and TVC = Q^3 - 30Q^2 +250Q + 10

AVC = Q^2 - 30Q + 250

MC = 3Q^2 - 60Q + 250

b)Minimum price at which the company will decide to produce its products is MC.P = MC is also the profit maximizing for perfect competition,P = MR = AR in perfect competition.Perfect competition market is allocatively efficient because here price equals marginal or additional cost of production which implies that a factor's price equals the factor's marginal revenue product.Sellers in perfect competition are price takers and they sell homogeneous goods,so no seller can charge more because if any seller does that no one would buy from her as similar products or substitutes are available at lower price in the market.So if any producer's MC > P then she should cut back on production to lower MC instead of raising the price. And if any producer can produce at a cost lower than price i.e MC < P,she should produce more and sell more to earn more revenue.In perfect competition,no seller would sell at price less than MC otherwise she would incur loss.So MC is the minimum price at which producer will produce and sell her products.

Rahul Sunny answered 2 years ago

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