Purchase Solution

# Costs of Regulation and Profit Maximizing Price

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Market demand and cost revenue relations:
P=\$5000 -\$0.25Q
MR=\$5000 - \$0.5Q^2(squared)
TC=\$6,000,000 + \$500Q +\$0.5Q^2(squared)
MC+\$500+\$1Q
Marginal cost: \$150 per unit, OSHA mandated safety feature
A. Calculate profit-maximizing price/output combination and economic profit level before installation of the OSHA mandated shielding equipment
B Calculate same after the OSHA guidelines have been met. Who pays the economic burden of meeting OSHA guidelines?

##### Solution Summary

The expert examines the costs of regulations and profit maximizing prices.

##### Solution Preview

A. Calculate profit-maximizing price/output combination and economic profit level before installation of the OSHA mandated shielding equipment

To max profit, the first order condition of the firm is:
MR=MC, or
5000 - 0.5Q=500+Q, or
1.5 Q = 4500
solve for Q= 3000
then from the demand curve, P=5000 -0.25Q =5000 -0.25*3000 = \$4250
TC= 6,000,000 + ...

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