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Chapter%207%20Practice%20A - Chapter 7 Practice A Ogden...

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Chapter 7 Practice A Ogden Dairy (OD) is one of many milk producers in the United States operating in the competitive market. As its vice president of operations, you are responsible for maximizing profit by adjusting output to maximize profit. As are the many other dairies, you are completely vertically integrated from dairy farm to grocery store shelves. 1. How does the milk industry fair in terms of the perfectly competitive assumptions? In your opinion, which assumptions generally hold and which do not? Explain. 2. Do you think the market for raw milk from the farm is more or less competitive than the market for packaged gallons of milk in the store? Why? Weekly market demand for gallons of milk is represented with the following market demand curve: P = 10.25 – 0.0002Q (where Q is gallons of milk). This can equivalently be written as: Q = 51250 – 5000P . Your total cost function is: TC = 5000 + 0.25q + 0.0002q 2 . 3. What are your average variable cost, average fixed cost, and marginal cost functions?
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