Suppose you are the owner of a small, perfectly competitive gizmo manufacturing company.

The market demand and supply for gizmos as well as the costs of production in the short run are given by:

Qd = 400 – 10P
Qs = -50 + 5P
TC = 0.2q2 + 10q + 50

Market Firm

a. Graph the demand and supply curves in the market diagram above. Be sure to show some work.
You will need to figure out appropriate intervals to use on the axes.

b. Algebraically calculate the equilibrium market price for gizmos. Show your work and label P* in the
graph.

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 c. State the equation of the marginal revenue curve. Briefly explain. Graph the MR curve in the firm
diagram above.

d. i. Calculate, and show your work, the equation of the marginal cost curve and the equation
of the average total cost curve.
ii. Complete the tables.
iii. Carefully draw both curves in the firm diagram on the previous page.

Marginal Cost Equation: Average Total Cost Equation:

Show your work à

q MC q ATC

0 0 --

10 10
20 20
30 30
40 40
50 50

60 60

70 70
80 80
90 90

100 100

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e. Algebraically calculate how many gizmos you should sell to maximize profit (q*)? Show all your
work. Label q* in the firm diagram above.

f. Algebraically calculate your profit. Show all your work.

g. Very carefully (using a different color for each if possible) label the following in the firm diagram
above:

ü total revenue (TR)

ü total cost (TC)

ü profit for the firm

h. Will you stay in business or shut down in the short run? Explain.