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Kelson Electronics, a manufacturer of DVRs, estimates the following relation between its marginal cost of production and monthly output:
MC = $150 + 0.005Q
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?
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