Question

3. Kelson Electronics, a manufacturer of DVRs, estimates the following relation between its marginal cost of production and monthly output: MC = $150 + 0.0050 a. What does this function imply about the effect of the law of diminishing returns on Kelson's short-run cost function? b. Calculate the marginal cost of production at 1,500, 2,000, and 3,500 units of output C. Assume Kelson operates as a price taker in a competitive market. What is this firm's profit-maximizing level of output if the market price is $175? d. Compute Kelson's short-run supply curve for its product.

please show your work so I can understand and no pictures except graphs, please and TY

Answer 1

Answer:

Given that:

Kelson Electronics a manufacuturer of DVR,the relation between its marginal cost of production and monthly out put

MC = $150+0.005Q

a)

• The law of diminishing return states that the output or utility decreases with increases in consumption or input.
• Here, we can see that the marginal cost increases with increasing output.
• This is also means the productivity decreases with increasing output.The clearly exhibits diminishing returns to scale.

b)

• The mariginal cost function is MC =150+0.005Q.
• Calculate the mariginal cost at quality 1500

by substituting in the mariginal cost function

MC=150+0.005*1500

MC = 157.5

• Calculate the mariginal cost at quality 2000 by substituting in the mariginal cost function

MC=150+0.005*2000

MC = 160

• Calculate the mariginal cost at quality 3500 by substituting in the mariginal cost function

MC=150+0.005*3500

MC = 167.5

c)

A price laker firm products where the price equals the marginal cost. If given the price is $175, the quality produced is:

175=150+0.005Q

25 = 0.005Q

Q = 5000

Hence, 5000 unit are produced at price $175.

d)

• The short run supply curve is nothing but the rising part of marginal cost.
• Here,there is only diminishing return which means ,the marginal cost only increases at given output.
• The marginal cost curve is equal to the short run.

MC=150+0.005Q

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