Q.a)
i) At optimal level, that is at profit maximizing level of out the following condition is met -
Marginal revenue = marginal cost
MR is derived from TR function as follows -
TR = Q*P
we have D = Q = (3000-p)0.5
or p = 3000 - Q2
Thus, TR = p*Q = ( 3000 - Q2 )Q = 3000Q - Q3
and MR = dTR/dQ = 3000 - 2Q2
and MC is derived from Total Cost function as follows -
TC = fixed cost + variable cost*Q
TC = 3000 + 300Q
and MC = dTC/dQ = 300
now MR = MC
3000 - 2Q2 = 300
Q = 36.74
thus optimal level of output is 36.74 approximately.per hour.
ii) Break even point is that point at which TR = TC or it is the level of output at which profit is zero.
We have already derived TR and TC functions as above.
3000Q - Q3 = 3000 + 300Q
2700Q - Q3 - 3000 = 0
Q = 1.1 approximately.
Thus at output of 1 per hour, the firm gets break even.
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