1.Why is it important that in understanding supply chain we study Industrial Org
ID: 1133048 • Letter: 1
Question
1.Why is it important that in understanding supply chain we study Industrial Organization?
2.Suppose that the total cost function of a pumpkin producing farm is TC=18,000+5q+20q2, where q is the quantity of pumpkins produced by this farm. At the moment, the firm is producing 20 pumpkins.
a.What is the average cost for this firm?
b.What is the marginal cost at this current level of production?
c.If the farm wanted to produce more efficiently (using up its resources the best that it can), what should it do with production?
3.Why is Marginal revenue less than total revenue?
4.Why is the Marginal revenue function always lower than the inverse demand function? Can it Marginal revenue ever be the same as price? Explain.
5.Let’s get back to the pumpkin farm exercise. Suppose that the market is characterized by perfect competition with a market demand of Qd=840-5P.
a.How will each farm choose output to maximize profit in this market? (i.e.: what is the optimal output function?)
b.If there are 200 identical farms in this market, what is the market supply? How much will be exchanged in equilibrium? What will the price and output per farm be in equilibrium?
c.What are profits for each farm? Can this equilibrium be sustained in the long run? What do you expect will happen?
d.Look at your answer c in question 1. Why is the typical farm not operating at that level? Wouldn’t they be more efficient if they did? Please make sure you explain this very carefully, you can use math or intuitive analysis to do this.
Explanation / Answer
2.Suppose that the total cost function of a pumpkin producing farm is TC=18,000+5q+20q2, where q is the quantity of pumpkins produced by this farm. At the moment, the firm is producing 20 pumpkins.
a.What is the average cost for this firm
Answer:-(2) (a) Average Cost = TC/q = 18,000/q + 5 + 20q = 1305
2(b) Marginal Cost (MC) = Change in TC/ Change in q
MC = 5 + 20q = 5+ 400 = 405
2(c) If firm wants to produce efficiently then it should produce using MR= MC condition.
Answer:- (3) Marginal revenue is the additional revenue generated by firm by producing additional uotput while total revenue is the revenue from all the output level. That is why total revenue is always greater than marginal revenue.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.