A Firm Faces the Demand Curve, P = 80 -

question 34

Essay

A firm faces the demand curve, P = 80 - 3Q, and has the cost equation: C = 200 + 20Q, where P = price, C = total cost, and Q = quantity.
(a) Find the optimal quantity and price for the firm.
(b) Now suppose that the demand for the firm’s product changes to: P = 110 – 3Q. Find thenew optimal quantity and price. Has there been an increase or a decrease in demand?
Explain.

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Definitions:

Machine-Hours

A measure of production time referring to the total hours that machinery is in use during the manufacturing process.

Departmental Predetermined Rates

Standard rates used by departments to allocate costs based on estimated activity levels.

Manufacturing Overhead

All indirect costs associated with the production process, including costs related to factory equipment maintenance, utilities, and quality control.

Machine-Hours

A measure of the amount of time a machine is operated in the production process, used for allocating manufacturing overheads.