Analyze the major short run and long cost functions for the low-calorie, frozen microwaveable food company given the cost functions below.
Question 1
Outline a plan that will assess the effectiveness of the market structure for the company’s operations. Note: In Assignment 1, the assumption was that the market structure [or selling environment] was perfectly competitive and that the equilibrium price was to be determined by setting Qd equal to Qs. The market structure in the first assignment was competitive. This means that the firm does not have control over the price and it has to charge the equilibrium price. You are now aware of recent changes in the selling environment that suggest an imperfectly competitive market where your firm now has substantial market power in setting its own “optimal” price.
Since the company has control over the price, it has to decide how much to charge and how much to produce to maximize profit.
The profit-maximizing/loss-minimizing quantity and price can be determined by setting the MR = MC. This involves the following.
o Find the total revenue: TR = P x Q
o Find the marginal revenue by calculating the derivative of the total revenue function.
o Set MR equal to the provided MC function and solve for Q, and then for P.
Based on the results, the company should make a decision to continue producing or shut down.
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