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Competitive Markets

XYZ Corporation faces a horizontal demand curve and the market price is given to be $15.

Total variable cost equation for XYZ Corporation is equal to:

TVC = .25Q3 ââ?¬" 3Q2 +20Q

where Q is quantity in thousands

a) What key concept must be implemented if the firm wants to maximize profits in this market?

b) Which volume of output should XYZ Corporation produce if it wants to maximize profits? Explain why.

XYZ Corporation operates in a perfectly competitive market. The Corporationââ?¬â?¢s total costs are represented by the equation:

TVC = 20Q3 ââ?¬" 60Q2 +10Q

where Q is quantity and measured in thousands.

The objective of management is to determine below what price the company should shut down operations.

a) Calculate the shutdown price of operations for Corporation XYZ.

Solution Preview

1. For any firm in a competitive market, the profit maximizing rule is always marginal cost = price.

marginal cost = d(TVC)/dQ = 0.75Q^2 - 6Q + 20 = 15 = price.

Solving this leads to Q = 0.945 or ...

Solution Summary

Competitive Markets

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