A Firm Can Produce Any Quantity of Good X with the Following

question 161

Essay

A firm can produce any quantity of good X with the following cost structure: TC = 450,000 + 20Q, where Q measures units of output.
a. What happens to the firm's average total cost of production as it expands output?
b. What type of firm is this?
c. The industry demand for good X is Q = 100,000 - 500P. At the profit-maximizing output level, calculate the firm's ATC of production.
d. Suppose the profit-maximizing output level you calculated to answer part c is split evenly between two firms, each with the cost structure given by TC = 450,000 + 20Q. What is the ATC of production in this two-firm industry?

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Definitions:

Saving Distortions

Alterations in the savings behavior of individuals or institutions due to external influences, such as tax policies or inflation.

Real Interest Income

The income from interest after adjusting for inflation, reflecting the true purchasing power of interest earnings.

Nominal Interest Income

The income earned from investments or savings before adjusting for inflation, expressed in the current currency.

Money Supply

The sum quantity of financial assets in an economy at a particular instant.