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The following relations describe the monthly demand and supply, and cost conditions for a...

Question:

The following relations describe the monthly demand and supply, and cost conditions for a computer support service company catering to small businesses in Gauteng:

{eq}Q_d = 2 400 - 8P \\ Q_s = -1 000 +8P {/eq}

Where:

{eq}Q {/eq} = number of businesses that need services,

{eq}P {/eq} = the monthly fee in rands.

{eq}TC = 30 000 + 70Q {/eq}

Where:

{eq}TC {/eq} = firm's total cost per month in rands in the short run.

Required:

a. At what average monthly fee would demand equal zero?

b. At what average monthly fee would supply equal zero?

c. What are the equilibrium price and output levels?

d. Determine the point elasticity of demand at equilibrium. What will happen with the firm's revenue if management decides to increase its price? Why?

e. Graphically illustrate the demand and supply curves as well as short-run equilibrium.

f. What is the firm's fixed cost?

g. Determine the firm's profit or loss.

h. Does the firm earn normal or economic profit and why?

Normal Profit:

In a perfectly competitive market, producers sell products at a price point that equates its marginal cost. This way, only the cost is recovered and producers do not earn profits. However, perfectly competitive markets are theoretical.

Answer and Explanation: 1

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a. For demand to be zero, the demand equation needs to be solved by putting Qd=0.

{eq}\begin{align*} Qd &= 2400 - 8P\\ 2400 - 8P &= 0\\ 8P &=...

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Net Profit: Definition & Calculation

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