Competitive Strategy. Carry Underwood runs Tax Preparation Services, Inc., a small firm that offers timely tax preparation services in Oklahoma City. Given the large number of competitors, the fact that tax preparers rely heavily upon standard tax-preparation software, and the lack of entry barriers, it is reasonable to assume that the tax form preparation market is perfectly competitive and that the average $150 price equals marginal revenue, P = MR = $150. Assume that TPS's annual operating expenses are typical of several such firms operating in the local market, and can be expressed by the following total and marginal cost functions:
where TC is total cost per year, MC is marginal cost, and Q is the number of clients served. Total costs include a normal profit and allow for Underwood's employment opportunity costs.

Question

Competitive Strategy. Carry Underwood runs Tax Preparation Services, Inc., a small firm that offers timely tax preparation services in Oklahoma City. Given the large number of competitors, the fact that tax preparers rely heavily upon standard tax-preparation software, and the lack of entry barriers, it is reasonable to assume that the tax form preparation market is perfectly competitive and that the average $150 price equals marginal revenue, P = MR = $150. Assume that TPS's annual operating expenses are typical of several such firms operating in the local market, and can be expressed by the following total and marginal cost functions:
  where TC is total cost per year, MC is marginal cost, and Q is the number of clients served. Total costs include a normal profit and allow for Underwood's employment opportunity costs.

Quizplus · Accepted Answer

The Answer of Competitive Strategy. Carry Underwood runs Tax Preparation Services, Inc., a small firm that offers timely tax preparation services in Oklahoma City. Given the large number of competitors, the fact that tax preparers rely heavily upon standard tax-preparation software, and the lack of entry barriers, it is reasonable to assume that the tax form preparation market is perfectly competitive and that the average $150 price equals marginal revenue, P = MR = $150. Assume that TPS's annual operating expenses are typical of several such firms operating in the local market, and can be expressed by the following total and marginal cost functions:
  where TC is total cost per year, MC is marginal cost, and Q is the number of clients served. Total costs include a normal profit and allow for Underwood's employment opportunity costs.