ABC Technology Corp. Ltd is a leading supplier of standard 128 MB-RAM computer chip. This Corporation was established in 1980 and has manufactured computer chips by employing excellent team with broad experience. There are a number of competitors of ABC’s manufactured chips as they are producing the same output in terms of its shape, size and speed. ABC Technology Corp. Ltd has a large market share and earns huge profit due to cost minimization. But, top management has analyzed that this robust market competition can decrease the equilibrated market price level. The total and marginal cost functions of ABC Technology Corp. Ltd are:
TC=50,000 +35Q +0.0002Q2
MC=¶TC/¶Q=35 + 0.0004Q
Where Q is the number of computer chips produced.
A- By taking into account the forecasting of top management and above total and marginal cost functions of ABC Limited Company, calculate Company’s optimal output and profits if chip prices are stable at $45 per Chip.
Price of Chip= 45
For Optimal output.
Multiplying by Q on both sides.
Put Q=15811 in TC equation
Total Revenue =Quantity* price
B- If chip price fall to $40 due to high competition then calculate ABC Limited Company’s optimal output and profits/Loss. (Marking scheme: 10+10)
TR = 25Q
MR = MC
25 = 5 + 0.0004Q
i.e Q= 50,000DOWNLOAD SOLUTION HERE