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

question 14

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.
-The minimum value of average variable cost is $_____.

• A) $0.50
• B) $0.75
• C) $0.975
• D) $1.00
• E) $2.15

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Definitions:

Common Stock

A type of equity security that represents ownership in a corporation, granting holders a share of profits in the form of dividends and voting rights.

Paid-In Capital

The amount of money a company has received from shareholders in exchange for shares of stock, beyond the par value of the shares.

Basic Earnings

The amount of net income available to common shareholders, divided by the common shares outstanding, representing a straightforward measure of earnings without adjustment.

Common Shares

Equity securities that represent ownership interest in a corporation, entitling shareholders to dividends and a say in corporate matters.