A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results: $Q _ { \mathrm { d } } = 25,000 - 5,000 P + 25 M$ $Q _ { s } = 240,000 + 5,000 P - 2,000 P _ { J }$ where P is price,M is income,and $P _ { I }$ is the price of a key input.The forecasts for the next year are $\hat { M }$ = $15,000 and $\hat { P } _ { I }$ = $20.Average variable cost is estimated to be $A V C = 14 - 0.008 Q + 0.000002 Q ^ { 2 }$ Total fixed cost will be $6,000 next year.What is the profit-maximizing output choice for the firm?

Question

Quizplus · Accepted Answer

The profit-maximizing output choice for the firm is 3,000 units. This is because at this output level, the marginal revenue (MR) equals the marginal cost (MC). The MR is the change in total revenue resulting from a one-unit increase in output, and the MC is the change in total cost resulting from a one-unit increase in output. In this case, the MR is equal to the price, which is $20, and the MC is equal to the AVC, which is $14. Therefore, the profit-maximizing output choice is 3,000 units.

A Consulting Company Estimated Market Demand and Supply in a Perfectly