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 will the firm's profit (loss)be?

Question

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To find the firm's profit, calculate equilibrium price and quantity using demand and supply equations, then find total revenue and total cost. The equilibrium price is $20, and quantity is 100,000 units. Total revenue is $2,000,000. Total cost is $1,970,000 (variable cost $1,964,000 + fixed cost $6,000). Profit is $30,000.

A Consulting Company Estimated Market Demand and Supply in a Perfectly