A firm with market power faces the following estimated demand and average variable cost functions: $$Q _ { d } = 39,000 - 500 P + 0.4 M - 8,000 P _ { R }$$ $$A V C = 30 - 0.005 Q + 0.0000005 Q ^ { 2 }$$ where $Q _ { d }$ is quantity demanded,P is price,M is income,and $P _ { R }$ is the price of a related good.The firm expects income to be $40,000 and $P _ { R }$ to be $2.Total fixed cost is $100,000.The firm should ______________ because _______________.

Question

Quizplus · Accepted Answer

The firm should operate because the price ($62) is greater than the average variable cost ($22), meaning the firm can cover its variable costs and contribute to fixed costs.

A Firm with Market Power Faces the Following Estimated Demand Qd=39,000−500P+0.4M−8,000PRQ _ { d } = 39,000 - 500 P + 0.4 M - 8,000 P _ { R }Qd​=39,000−500P+0.4M−8,000PR​

A Firm with Market Power Faces the Following Estimated Demand $Q _ { d } = 39,000 - 500 P + 0.4 M - 8,000 P _ { R }$