Supply functions for a raw chocolate are estimated

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Reference no: EM1314952

Q. Consider a price-taking firm in the competitive industry for raw chocolate. The market demand also supply functions for a raw chocolate are estimated to be:

CHOC Demand Q= 10,000 -10,000P + 2M
CHOC Supply Q = 40,000 + 10,000P - 4,000P(1)

where Q is the number of 10 pound bars per month, P is the price of a 10 pound bar of raw chocolate, income is M also P is the price of cocoa (the primary ingredient input) The manager of ABC cocoa products uses time-series data to obtain the subsequent forecasted values of M also P(1) for 2005:

M = $25,000 also P(1) = $10

The manager of ABC Cocoa also estimates its total variable cost function to be:

TVC = 3.0Q - .0027Q^2 + .0000009Q^3

Fixed Costs at ABC will be $1,600 in 2005.

A) Conclude the equilibrium price also quantity of raw chocolate in 2005.
B) Compute the price elasticity of demand at the equilibrium price also quantity.
C) Should ABC cocoa produce or shut down? Elucidate
D) if it produces; illustrate what should the optimal price level of production for the firm?
E) Compute Economic profit for ABC.

Reference no: EM1314952

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