Question

Firm A: TC = 10 + 60Q - 10Q^2 + 0.6Q^3 Firm B: TC = 2 + 50Q - 7Q^2 + Q^3 the graph below presents the short-run averag...


Firm A: TC = 10 + 60Q - 10Q^2 + 0.6Q^3

Firm B: TC = 2 + 50Q - 7Q^2 + Q^3

the graph below presents the short-run average cost functions for Firms A and B.

a. to which does firm A or B does SRAC1 pertain?

b. To which does Firm A or Firm B does SRAC 2 Pertain.

c. Firm A and Firm B being the only 2 firms in the market, will tend to engage in fierce price competition in order to win market share and enhance profit. True or false?

Transcribed: oog MC1 SRAC 1 MC2 SRAC 2 0. hich of Fir

Answer

TCA = 10 + 60Q - 10Q2  + 0.6Q3 

TCB = 2 + 50Q - 7Q2  + Q3 

TCA = 10 + 60Q - 10Q2  + 0.6Q3 

Average Cost of firm A (ACA ) = 10/Q + 60 - 10Q  + 0.6Q2 

TCB = 2 + 50Q - 7Q2  + Q3 

Average Cost of firm B (ACB ) = 2/Q + 50 - 7Q  + Q2 

SRAC1 is pertained by firm A as the SRAC1 is higher and the ACA 's fixed cost is higher at 60

SRAC2 is pertained by firm B as the SRAC2 is lower and the ACB 's fixed cost is lower at 50

 

 

Firm A and Firm B being the only 2 firms in the market, will not tend to engage in fierce price competition in order to win market share as firm B's cost is very low than firm A and if there is a competition firm B will overcome firm A and be the dominant market shareholder and will enhance its profit. Answer- False

Recent Questions