January 22, 2019
###### Individual Essay Assignment
January 22, 2019

produc Show more home / study / business / economics / questions and answers / the inverse demand for a firms product is p Question The inverse demand for a firms product is P = 400 Q- 4 Q^2. The firms cost of production is C(Q) = 16Q Q2 + 4Q3. The firms problem is to find the profit-maximizing point on its demand curve. (a) Calculate the firms minimum average cost and the output level Q at which the firm achieves that minimum average cost. (b) Over what range of output (if any) does the firm have economies of scale? Over what range of output (if any) does the firm have diseconomies of scale? (c) Calculate all points at which the marginal and average cost curves intersect. (d) Draw the marginal and average cost curves showing the exact coordinates of the points that you found in part (c) and also the coordinates of the points where Q=1/10 and Q=1. (e) Calculate the elasticity of demand at the point where Q=3. (f) Calculate the firms markup and profit if it chooses the point on the demand curve at which Q=3. (g) Suppose that the firm is producing Q=3 and estimates its elasticity of demand based on the elasticity at that point. You are a consultant and the firm asks you whether it can improve its pricing. It provides you with its estimate of elasticity. Based on that elasticity estimate calculate the firms optimal markup. (h) Based on your answers to parts (f) and (g) has the firm set the optimal markup? If not then would you advise the firm to increase or decrease its markup? Show less

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