Homework Sourse1 you are the manager of College Computers a manufacturer of
1. you are the manager of College Computers, a manufacturer of customized computers that meet the specifications required by the local university. Over 90 percent of your client consists of college students. College Computers is not the only firm that builds the computers to meet this university\'s specifications; indeed, it competes with many manufactures online and through traditional retail outlets. to attract its large student clientele, College Computers runs a weekly ad in the student paper advertising itr\"free services after sale\" policy in an attempt to differentiate itself from the competition. the weekly demand for computers produced by College Computers is given by Q= 1,000-P, and its weekly cost of producing computers is C(Q)= 2,000+Q2. if other firms in the industry sell PCs at $600, what price and quantity of computers should you produce to maximize your firm\'s profit? what long run adjusment shoul you anticipate?
Solution
The presence of many sellers & buyers coupled with product differentiation, this industry structure is monopolistic competition where firms maximize profits by equating their marginal revenues with marginal costs.
Demand: Q = 1000 - P
Or,
P = 1000 - Q
Total revenue, TR = P x Q = 1000Q - Q2
Marginal revenue, MR = dTR / dQ = 1000 - 2Q
Total cost, C = 2000 + Q2
Marginal cost, MC = dC / dQ = 2Q
Equating MR with MC:
1000 - 2Q = 2Q
4Q = 1000
Q = 250
P = 1000 - Q = 1000 - 250 = 750
Therefore, my price is higher than what other firms charge ($750 > $600). This signifies presence of excess (economic profits).**
In the long run, my excess profit attracts other firms who enter the market. New entrance lowers my firm\'s output, leading to gradually decreasing profits. This process will continue until all my excess profits is eroded and I only earn long-run normal profits. So, in long-run, I\'ll anticipate lower sales (output) and lower profit.
**To answer this question, computation of profit is not necessary as long as the economic logic is provided.
