Reference no: EM131162200

Analyze the major short run cost functions for this firm assuming they are represented by the equations below. Suggest substantive ways in which you may use this information to make production decisions in the short-run and possibly the long run. TC = 160,000,000 + 100Q + 0.00632Q2 VC = 100Q + 0.00632Q2 MC= 100 + 0.0126Q Hints: What is the equation for average total costs? How is this useful? What is the output level and dollar value associated with minimum average total cost and minimum average variable costs? TC = 160,000,000 + 100Q + 0.00632Q 2 Equation for average total costs = 160,000,000 / Q+ 100+ 0.00632 Q Equation for average total costs = 100+ 160,000,000 Q-1 + 0.00632 Q dc/dq = -1 X 160,000,000 Q-2 + 0.00632 160,000,000 / Q2 = 0.00632 Q = 159,111 units ( out level) TC = 160,000,000 + 100Q + 0.00632Q 2 TC = $ 335 ,910 , 181.20 ( dollar value) VC = 100Q + 0.00632Q 2 Average variable costs = 100 + 0.00632 Q dvc/dq = 0.00632 The output level associated with minimum average variable costs = 0 dollar value = $ 100 . This is the question: Outline a plan, or use your results above, to evaluate this firm’s financial performance. Consider all the key drivers of performance, such as total revenue, total cost, total profit, etc. Assuming production is operating at its optimal scale (min. ATC = min. LRATC), is the firm earning positive or negative profits in the short run? Is this profitability likely to change in the long run? Hint: To calculate profit in the short run, use the cost, price, and output levels you generated in part 5. Hint: Profit in the long run will be driven down or up to zero if there are no significant market barriers to entry or exit.