A domestic auto producer is facing intense competition in the US market from Asian imports. The CFO decides that the solution is to produce at the point at which average cost is minimized, i.e. where TC/Q is at a minimum. The firm's cost structure is given by:

TC={(1/3Q)^3}-{(100Q)^2}+20,000Q

Calculate the average cost-minimizing level of output and demonstrate that this level of output is at minimum average cost. Call this output level Qmin. You are hired by the firm as an economic consultant, and you estimate the total revenue function to be

TR=20,000Q

Is Qmin the correct output level? What would you, as an economist, calculate as the level of output most beneficial to the firm? Are your estimated profits higher than those of the CFO?

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A domestic auto producer is facing intense competition in the US market from Asian imports. The CFO decides that the solution is to produce at the point at which average cost is minimized, i.e. where TC/Q is at a minimum. The firm's cost structure is given by:

TC={(1/3Q)^3}-{(100Q)^2}+20,000Q

Calculate the average cost-minimizing level of output and ...

Solution Summary

The output level at which the average cost minimized is calculated. The solution was rated as "5/5" by the student who originally posted the question.

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