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

question 18

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 marginal cost function is:

• A) SMC = 3.0 -0.0027Q + 0.0000009Q²
• B) SMC = 3.0 - 0.00135Q + 0.00000045Q²
• C) SMC = 3.0Q -0.0027Q² + 0.0000009Q³
• D) SMC = 3.0 -0.0054Q + 0.0000018Q²
• E) none of the above

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