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A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results: Qd = 25,000 − 5,000P + 25M Qs = 240,000 + 5,000P − 2,000P1 where P is price, M is income, and P1 is the price of a key input. The forecasts for the next year are M̂ = $15,000 and p̂1 = $20. Average variable cost is estimated to be AVC = 14 − 0.008Q + 0.000002Q2 Total fixed cost will be $6,000 next year. What will the firm's profit (loss) be? a. $26,000 b. $20,000 c. −$6,000, the firm shuts down and loses only its fixed costs. d. $30,000 e. $36,000

A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results: Qd = 25,000 − 5,000P + 25M Qs = 240,000 + 5,000P − 2,000P1 where P is price, M is income, and P1 is the price of a key input. The forecasts for the next year are M̂ = $15,000 and p̂1 = $20. Average variable cost is estimated to be AVC = 14 − 0.008Q + 0.000002Q2 Total fixed cost will be $6,000 next year. What will the firm's profit (loss) be? a. $26,000 b. $20,000 c. −$6,000, the firm shuts down and loses only its fixed costs. d. $30,000 e. $36,000

Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter4: Extent (how Much) Decisions
Section: Chapter Questions
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A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

Qd = 25,000 − 5,000P + 25M

Qs = 240,000 + 5,000P − 2,000P1

where P is price, M is income, and P1 is the price of a key input. The forecasts for the next year are M̂ = $15,000 and p̂1 = $20. Average variable cost is estimated to be

AVC = 14 − 0.008Q + 0.000002Q2

Total fixed cost will be $6,000 next year. What will the firm's profit (loss) be?

a.
$26,000
b.
$20,000
c.
−$6,000, the firm shuts down and loses only its fixed costs.
d.
$30,000
e.
$36,000
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