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Answer to Question #69680 in Economics of Enterprise for Najmi

Question #69680
P=$250-$0.15Q, TC=$25000+$10Q(The TC function does not include the firm's cost of capital)
a. In a unregulated enviroment, what price would this firm change, what output would be produced, what would total profits be, and what rate of return would the firm earn on its asset base?
Expert's answer
P=$250-$0.15Q, TC=$25000+$10Q
a. The price and quantity are optimal, when MR = MC = P, so:
MC = TC' = 10,
MR = TR' = (P*Q)' = 250 - 0.3Q,
250 - 0.3Q = 10,
0.3Q = 240,
Q = 800 units.
P = 250 - 0.15*800 = $130.
Total profit is:
TP = TR - TC = 130*800 - (25000 + 10*800) = $71000.

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Comments

Assignment Expert
29.09.17, 22:03

Dear coral, please use panel for submitting new questions. Make sure you post full condition.

coral
29.09.17, 21:59

b. The firm has proposed charging a price of $100 for each unit of output. If this price is charged,
what will be the total profits and the rate of return earned on the firm’s asset base?
c. The commission has ordered the firm to charge a price that will provide the firm with no more
than a 10 percent return on its assets. What price should the firm charge, what output will be
produced, and what dollar level of profits will be earned?

Assignment Expert
29.09.17, 21:05

Dear coral, question does not contain enough data for calculation.

coral
29.09.17, 20:52

what about rate of return , it isn't mentioned above .

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