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:

Total Fixed Cost

The total fixed cost refers to the sum of all costs that do not change with the level of output produced by a company or during a specific period.

Maximum Profit

The highest possible financial gain a firm can achieve when the difference between total revenue and total cost is at its greatest.

Economic Profit

The split between a firm's entire proceeds and its total disbursements, embracing both acknowledged and veiled costs.