quote:

Originally posted by chadmk3 whats funny jocker ? dont see you solving much ?

for competition:

Average Costs = Cost function (C(Q)) divided by output:
AC = 1.5 = C(Q)/Q => cost function is C(Q) = AC*Q = 1.5*Q

since our fixed costs are 0 (average cost is just a constant), our price does not depend on our output level, and each competitor would like to produce as much as they can. therefore, each producer will just cover their marginal costs, and set the price to be just a little bit higher than that:

P > Marginal costs > C'(Q) > $1.5
Q < 1800 - 200*1.5 < 1500

price should be any number more than 1.5 ( in reality will be getting very close to 1.5) and market output Q < 1500

for monopoly:

for max profits, marginal profit (marginal revenue - marginal costs) = 0:

revenue= Q*P(Q). P(Q) = 9 - 0.005*Q => revenue = 9Q - 0.005*Q^2.
marginal revenue = derivative of revenue = 9 - 0.01*Q
marginal costs are C'(Q) = (1.5Q)' = 1.5

so, marginal profit is = 9-0.01*Q -1.5. Setting that to 0, we get

7.5 - 0.01*Q = 0 => Q = 750
P = 9 -0.005*Q = 5.25

So our market output Q = 750 and price = 5.25

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Last edited by Jocker on Nov-29-2006 at 05:08

wow thanks dude..for PC wouldnt the price just be 1.5 because the MC is equal to 1.5, and the price is equal to MC, making price=1.5? (since long run average cost is horizontal, making MC the same line as LAC)

quote:

Originally posted by S-a-M-u-E-l wow thanks dude..for PC wouldnt the price just be 1.5 because the MC is equal to 1.5, and the price is equal to MC, making price=1.5? (since long run average cost is horizontal, making MC the same line as LAC)

the thing is that from economical standpoint it would not make sense. the price would approach the costs (some theorist want to believe it would infinitely approach the costs), but would never become equal. if price equaled costs, no company would ever be making any money and that market segment would just collapse.

the idea behind the perfect competition is that each competitor is fully aware of all the economic laws, meaning that no one would would attempt to produce more than they should (so the output would never quite be the 1500 we have mentioned) - otherwise ALL the competitors are instantaneously going broke and exiting the market.

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ah but in the long run in perfect comepetition, firms are making zero profits...

quote:

Originally posted by S-a-M-u-E-l ah but in the long run in perfect comepetition, firms are making zero profits...

eh, then it should be equal to 1.5

those goddamn theorists, never making any sense

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