Lesson_1_Assignment_4

# Lesson_1_Assignment_4 - Shridhara Kollur :- Lesson #1,...

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Shridhara Kollur :- Lesson #1, Assignment #4 Average Cost Minimization . Better Buys, Inc., is a leading discount retailer of wide-screen digital and cable-ready plasma HDTVs. Revenue and cost relations for a popular 55-inch model are: TR = \$4,500Q - \$0.1Q 2 MR = ΔTR/ ΔQ = \$4,500 - \$0.2Q TC = \$2,000,000 + \$1,500Q + \$0.5Q 2 MC = ΔTC/ ΔQ = \$1,500 + \$1Q A. Calculate output, marginal cost, average cost, price, and profit at the average cost-minimizing activity level. To find the average cost-minimizing level of output, set MC = AC and solve for Q. Since, AC = TC/Q = \$2,000,000 + \$1,500Q + \$0.5Q 2 / Q = \$2,000,000Q- 1 +\$1,500+\$0.5Q MC=AC, \$1,500 + \$1Q=\$2,000,000Q- 1 +\$1,500+\$0.5Q 0.5Q=\$2,000,000/Q Q*Q=\$2,000,000/0.5 =4000000 Q=2000 MC=\$1,500 + \$1*2000=\$1,500+\$2,000=\$3,500 AC=\$2,000,000/\$2,000+\$1,500+\$0.5*2000=\$1,000++\$1,500+1000=\$3,500 P=TR/Q =\$4,500Q - \$0.1Q 2 /Q = \$4,500-\$0.1Q=\$4,500-\$0.1*2000=\$4,300 TC=\$2,000,000 + \$1,500*2000+0.5*2000*2000=\$2,000,000 +3000000+ \$2000000=\$7000000 Pi = P × Q – TC=\$4,300*\$2,000-\$7000000=\$8600000-\$7000000=\$1,600,000

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## This note was uploaded on 04/18/2011 for the course ECON 101 taught by Professor Sam during the Spring '11 term at Bradford School of Business.

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Lesson_1_Assignment_4 - Shridhara Kollur :- Lesson #1,...

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