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# "Business Manager and Director of Finance" Please respond to the following:

Homework

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Problem 1:
When the demand function is Q = 5,000 – 25P, the inverse demand function is
P = 200 – 0.04Q
TR = (P)(Q)
= 200Q – 0.04Q
2
MR = 200 – 0.08Q
TC = 1500 + 20Q + 0.02Q
2
MC = 20 + 0.04Q
Profit is maximized when MR = MC
200 – 0.08Q = 20 + 0.04Q
Or, 0.12Q = 180
Or, Q* = 180/0.12 = 1500
Therefore P* = 200 – (0.4*1500) = 200 – 60 = 140

Profit = TR – TC = 210000 – 76500 = 133500. Therefore, in the first year it will be earning a
profit of \$133500.
Getting attracted by this profit other firms outside the industry will be attracted and enter
the industry. As more and more firms enter the industry, the number of products available to a
consumer will increase. The demand curve for each firm will shift to the left. Again, if the firms
were incurring losses in the short run, few firms will go out of the industry which will lower the
consumers’ choice and shift the demand curve faced by each firm to the right. This process of
entry and exit will continue till firms are earning zero profit.

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Problem 1:When the demand function is Q = 5,000 - 25P, the inverse demand function isP = 200 - 0.04QTR = (P)(Q)= 200Q - 0.04Q2MR = 200 - 0.08QTC = 1500 + 20Q + 0.02Q2MC = 20 + 0.04QProfit is maximized when MR = MC200 - 0.08Q = 20 + 0.04QOr, 0.12Q = 180Or, Q* = 180/0.12 = 1500Therefore P* = 200 - (0.4*1500) = 200 - 60 = 140Profit = TR - TC = 210000 - 76500 = 133500. Therefore, in the first year it will be earning a profit of \$133500.Getting attracted by this profit other firms outside the industry will be attracted and enter the industry. As more and more firms enter the industry, the number of products available to a consumer will increase. The demand curve for each firm will shift to the left. Again, if the firms were incurring losses in the short run, few firms will go out of the industry which will lower the consumers' choice and shift the demand curve faced by each firm to the right. This process of entry and exit will continue till firms are earning zero profit.Problem 2:Pg = 1900Pb = 2100G = 9960 = 60%B = 6640 = 40%GGC has substantial excess capacity-it could easily install 25,000 systems annuallyQw =2100 - 6.25Pgw + 3Pbw + 2100Ag - 1500Ab + 0.2Yw = 2100 - 6.25 Pgw + (32100) + (21001.5) - (15001.2) + (0.260000) = 21750 - 6.25 PgwQe = 36620 - 25Pge + 7Pbe + 1180Ag - 950Ab + 0.085Ye = 36620 - 25 Pge + (72100) + (11801.5) - (9501.2) + (0.08530000) = 54500 - 25 PgeQw = 21750 - 6.25 PgwOr, Pgw = ...
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