the industry demand function for bulk plastics is represented by the following e
ID: 1245546 • Letter: T
Question
the industry demand function for bulk plastics is represented by the following equation p = 800 - 20Q where Q represents millions in pounds of plastic the total cost function for the industry, exclusive of a required return on invested capital is tc= 300+500Q+10Q2. A- if the industry acts like a monopolist in the dtermination of price and output, compute the profit maximization level of price and output. B. assume that this industry is composed of many (500) small firms, such that the demand function facing any individual firm is p=$620 compute the profit maximization level of price and output under these conditions (the industry's total cost function remains unchanged).Explanation / Answer
a) Given p = 800 - 20Q and TC = 300 + 500Q + 10Q2
Total Revenue = TR = pQ = 800Q - 20Q2
MR = 800 - 40Q
Profit maximisation takes place when MR = MC
Therefore, 800 - 40Q = 500 + 20Q
60Q = 300
Q = 5 units
p = 800 - 100 = $ 700
b) Given p = $ 620
Total revenue = 620Q
MR = 620 ,
Now, MR = MC
620 = 500 + 20Q
Therefore, Q = 6 units.
p = $ 620
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