Detailed Optimization Calculations
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Optimization:
Giant Screen TV, Inc, is a manufacturer and distributor of high-resolution 50-inch television monitors and consoles for individual and commercial customers. Revenue and cost relations are:
TR = $4,500Q - 0.1Q^2
MR = $4,500 - 0.2Q
TC = $2,000,000 + $1,500Q + 0.5Q^2
MC = $1,500 + $Q
A. Calculate output, marginal cost, average cost, price, and profit at the average cost-minimizing activity level.
B. Calculate these values at the profit-maximizing activity level.
C. Compare and discuss your answers to part A and B.
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Solution Summary
Given a firm's cost and revenue functions, this solution shows the precise, detailed mathematical calculations necessary to maximize a firm's revenues and minimize its costs.
Solution Preview
a) Calculate output, marginal cost, average cost, price, and profit at the average cost-minimizing activity level.
At the cost-minimization point, MC = ATC
ATC = TC/Q = 2000000/Q + 1500 + 0.5Q
Let MC = ATC
1500 + Q = 2000000/Q + 1500 + 0.5Q
0.5Q = 2000000/Q
0.5Q^2 = 2000000
Q^2 = ...
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