Questions by okey43 - Page 41
In Autarka, cardboard boxes are sold in bundles of 100 . At present, the market price for a bundle of boxes is $32. The technology for manufacturing cardboard boxes is readily available and common to all manufacturers. The cost of plant and machinery for a firm in the box manufacturing business is $8,500,000 per year. The labour, material, and energy cost of producing a bundle of 100 boxes is $23. A market study indicates that demand for cardboard boxes is given by the function, P=46.81,000,000Q. where P represents the price of a bundle of 100 boxes, and Q is the total number of bundles of boxes sold each year. 3.1 Required steps When completing the industry analysis you should assume that firms are engaged in Cournot Competition. Step 1: Using the information provided in the scenario, derive a total cost function for a typical cardboard box manufacturer. Use QA to denote the quantity produced by the typical firm. (4 marks) Step 2: Derive a profit function for the typical firm. Use X to denote the combined production of the remaining three firms in the market. ( 6 marks) Step 3: Find the profit of the typical firm if all firm's in the market sell at the current market price of $32. ( 8 marks) Step 4: Find the consumer surplus if all firm's in the market sell at the current market price of $32. (6 marks) Step 5: Derive the typical firm's best-response function. (8 marks) Step 6: Find the equilibrium quantity and profit for the typical firm. (11 marks) Step 7: Find the equilibrium price and consumer surplus. ( 7 marks)