Answer to Question #85315 in Microeconomics for Janet

Question

b) The demand for a commodity is given by p = 400 – q. The average total cost of producing the commodity is given by
where p is the price in shillings and q is the quantity in kilograms.

Required
i) What does in the ATC equation represent economically? (1 mark)
ii) Determine the output that leads to maximum profit and the profit at the level of output. (6 marks)

Answer 1

i)

It represents the Average Fixed Cost

ii)

Maximum profit will be obtained where Marginal Revenue = Marginal Cost. The question does not provide all the variables to calculate the maximum profit and the profit at the level of output.