dominated by that is sim- 2. Ajax Cleaning Products is a medium-sized firm opera
ID: 1117535 • Letter: D
Question
dominated by that is sim- 2. Ajax Cleaning Products is a medium-sized firm operating in an indust one large firm-Tile King. Ajax produces a multiheaded tunnel wall scrub ilar to a model produced by Tile King, Ajax decides to charge the same price as s sim to avoid the possibility of a price war. The price charged by Tile Kingis 0, ing Ajax has the following short-run cost curve: TC = 800.000-5,00002 + 100Q2 a. Compute the marginal cost curve for Ajax. b. Given Ajax's pricing strategy, what is the marginal revenue function for Ajax) c. Compute the profit-maximizing level of output for Ajax. d. Compute Ajax's total dollar profits.
Explanation / Answer
TC = 800000 - 5000 Q + 100 Q2
1. MC = d(TC) / dQ = -5000 + 200 Q
2. Total revenue = P*Q = 20,000 Q
MR = dTR /dQ = 20,000
3. Profit maximisation occurs where P = MC
20,000 = -5000 + 200Q
Q = 125
4. Profit = total revenue - total cost
= (20,000*125) - (800,000 - 5000*125 + 100*(125)2)
= 250,00,00 - 1737500 = $762500
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