Refer to the Following:
Consider a Competitive Industry and a Price-Taking

question 42

Multiple Choice

Refer to the following:
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:
$$Q _ { d } = 10,000 - 10,000 P + 1.0 \mathrm { M }$$
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 2015:
$\hat { M } = \$ 50,000 \text { and } \hat { P } _ { I } = \$ 20$
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 2015.
-Average variable cost reaches its minimum value of _____ units of output.

• A) 1,000
• B) 1,500
• C) 2,000
• D) 2,500

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Definitions:

Unit Product Cost

The total cost assigned to a single unit of product, encompassing direct materials, direct labor, and manufacturing overhead.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in product costs.

Production Cost

The total expense incurred in manufacturing goods, including materials, labor, and overhead costs.

Variable Overhead

The costs that fluctuate with the level of production or business activity, such as utilities or materials.