Posted by **413** on Monday, January 15, 2007 at 4:03pm.

The demand for item A is

P=40 -3.5Q

The production of A entails the following average variable costs:

AVC=1.5Q - 35

Fixed Costs are 24.

a) Calculate the revenue maximizing price of A

Revenue= PQ

Revenue= 40Q-3.5Q^2

Revenue' = 40-7Q

Q=40/7

P=40-3.5(40/7)

P=20

seems right?

b) Calculate the output level that minimizes the Average total cost.

-What is the average total cost equation?

do you just add the fixed cost to the AVC

ATC=1.5Q-35+24

ATC=1.5Q-11

or

is it finding variable cost first by dividing AVC by Q, then adding the fixed cost, then divide by Q

VC=1.5Q^2-3.5Q

TC=1.5Q^2-3.5Q+24

ATC=1.5Q-3.5+24/Q

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