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Economics Homework -- Maximizing Profits...

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  1. Nov 11, 2015 #1
    Hello, I need help with parts 4b-4d and to know if everything I've done is correct.


    A medical facility is faced with the following information concerning each MRI they provide.


    Q=2100-.5P MR=4200-4Q TC=400Q+5000 MC=$400


    1. Find profit maximizing level of output (Q*). Find P at Q*.

    MR = MC

    4200 - 4Q = 400

    3800 = 4Q

    Q = 950

    P = 4200 - 2Q

    P = 4200 - 2(950)

    P = $2300


    2. What is Total Revenue when the firm produces Q*? What is Total Cost when the firm produces Q*?

    TR = PxQ
    TR = 2300 x 950
    TR = $2,185,000
    TC = 400Q + 5000
    TC = 400 x 950 + 5000
    TC = $385,000


    3. What is ATC at profit maximizing level of output? What is the firm’s profit?

    ATC = TC / Q
    ATC = 385,000 / 950
    ATC = $405.26
    Profit = TR – TC
    Profit = $2,185,000 - $385,000
    Profit = $1,800,000


    4. Is this a perfectly competitive firm or a non-perfectly competitive firm? WHY?
    The firm is a non-competitive firm, because P is not equal to MC. The firm is non perfectly competitive because the MR curve is downward sloping.



    a. If this is a perfectly competitive firm what will happen for them to achieve their long run profit position? What is the profit position(s)?

    The firm will earn supernormal profits in the shorter run, but long run it will earn normal profits.


    b. If this is a monopolistic competitive firm what will happen for them to achieve their long run profit position? What is the profit position(s)?




    c. If this is a monopoly what will happen for the firm to achieve their long run profit position? What is the profit position(s)?



    d. If this is an oligopoly what will happen for the firm to achieve their long run profit position? What is the profit position(s)?

    5. Assume the government places a price control at P=$1500:
      1. What kind of price control is this? This is a price ceiling.
      2. Give a positive statement concerning this price control. A price ceiling above the equilibrium price has no effect on quantity supplied.
      3. Give a normative statement concerning this price control. The price ceiling is too low from the equilibrium price.
      4. What will happen to the market when this price control is in place? The price ceiling creates a shortage when the price is below the market equilibrium price.
     
    Last edited by a moderator: Nov 11, 2015
  2. jcsd
  3. Nov 11, 2015 #2

    Ray Vickson

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    Homework Helper

    Are these
    Q=2100-.5P MR=4200-4Q TC=400Q+5000 MC=$400
    supposed to be separate statements, to be separated by commas, or be on separate lines, for example? So, do you mean
    Q=2100-.5P
    MR=4200-4Q
    TC=400Q+5000 and
    MC=$400?

    If so, how are we supposed to know what the symbols stand for? I can guess what some of them mean, but I have no idea what is MR, for example.You need to do a better job of explaining.
     
  4. Nov 11, 2015 #3
    Yes to answer your first question, I didn't separate them very well.

    MR = Marginal Return
    TC = Total Cost
    MC = Marginal Cost
     
  5. Nov 11, 2015 #4
    TR = Total Revenue
    Q = Quantity
    P = Price
    ATC = Average total cost
     
  6. Nov 11, 2015 #5
    I'm 90% certain the questions I answered are correct. I'm more concerned with problems 4B-4D. I don't have a clue about those honestly.
     
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