Consider a Competitive Industry and a Price-Taking Firm That Produces $Q _ { d } = 10,000 - 10,000 P + 1.0 M$

question 94

Multiple Choice

Consider a competitive industry and a price-taking firm that produces in that industry.The market demand and supply functions are estimated to be: Demand: $Q _ { d } = 10,000 - 10,000 P + 1.0 M$ Supply: $Q _ { s } = 80,000 + 10,000 P - 4,000 P _ { I }$ where Q is quantity,P is the price of the product,M is income,and $$P _ { I }$$ is the input price.The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and $P _ { I }$ for 2021: $\hat { M } = \$ 50,000 \text { and } \hat { P } _ { I } = \$ 20$ The manager also estimates the average variable cost function to be $A V C = 3.0 - 0.0027 Q + 0.0000009 Q ^ { 2 }$ Total fixed costs will be $2,000 in 2021.The manager _____ produce since _____________.

• A)should; $3 > $0.975
• B)should; $2.75 > $0.75
• C)should not; $2 < $2.15
• D)should not; $0.50 < $1.00

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