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Derive the average cost function

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Suppose Razor is the only pharmaceutical firm that sells a flu vaccine in an economy. It faces the following demand, marginal revenue, marginal cost and total cost functions.

Demand: Marginal revenue: Marginal cost:

Total cost:

P = 70 - Q MR = 70 - 2Q MC = 10 + Q

TC = 20 + 10Q + ??2 2

a. Find the profit maximizing output and the price of the vaccine for the firm. Show your steps.

b. Derive the average cost function. Show your workings.

c. Use the result of part a and b, find the profit level of the firm. Show your workings.

d. Suppose the government is considering a price ceiling 10 percent below the price derived in part a.

I. Suggest one reason for the imposition of the price ceiling.

II. i) With the price ceiling, what is the price for the vaccine?

ii) Given the price in part i, how many vaccines will be purchased in the vaccine market?

iii) With the price ceiling, is there any shortage in the vaccine market? Explain your answer.

Reference no: EM133124743

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