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Question: take the following demand and cost functions for a single...

Question details

Take the following demand and cost functions for a single plant operation:

 

 

TR= $860Q- $0.04Q^2

MR= 860-0.08Q

TC= $80,000 + $20Q+ 0.02Q^2

MC= 20 + 0.04Q

Minimum AC=  -80,000Q^-2 + 0.02 =0 

 

 

a) Calculate the profit maximising level of output and price for one plant as well as the level of profit (show workings).                                                                                     (3 marks)

 

 

 

 

b) Find the profit maximising level of output if the business were to switch to a multi-plant operation taking advantage of minimum average cost. How many plants would this multi-plant operation involve? Show all workings.                                                                (6 marks)

 

 

 

 

c) Find the level of profit for the multi-plant operation (show workings).                (2 marks)

 

 

 

 

d) Should this operation operate as a multi-plant operation or a single plant operation (why or why not?)                                                                                                              (1 mark)

 

 

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