AK_HW4 - Answer Key for Homework#4 Question 1(a Since 60000...

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Unformatted text preview: Answer Key for Homework #4 Question 1 (a) Since 60000- 10000 P = 20000 P at the equilibrium, P = 2 and in turn Q = 40000. (b) When the price is 2 . 5 which is greater than the market price, the quantity demanded for Azarka is 0, because every consumers will buy from other firms’ product. When the price is 1 . 5 which is less than the market price, the quantity demanded for Azarka is 60000, because every consumers in the market will buy from Azarka. (c) In the perfectly competitive market, the marginal revenue is a price. That is, the marginal revenue is 2. To maximize the profit, the marginal revenue should be equal to the marginal cost. Then, 2 = 0 . 01 × Q , and so the maximizing production level is Q = 200. When Q = 200, • the total revenue is 2 × 200 = 400, • the total cost is 100+0 . 01+0 . 02+0 . 03+ ··· +1 . 99+2 . 00 = 100+100 × 2 . 01 = 301, • the profit is 400- 301 = 99, and • the average total cost is 301 200 = 1 . 505....
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AK_HW4 - Answer Key for Homework#4 Question 1(a Since 60000...

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