Analyze the major short run and long cost functions for the low-calorie, frozen microwaveable food company given the cost functions below. Suggest substantive ways in which the low-calorie food company may use this information in order to make decisions in both short and the long-run.
TC = 160,000,000 + 100Q + 0.0063212Q2
VC = 100Q + 0.0063212Q2
MC= 100 + 0.0126424Q
- To maximize profit, the firm has to find ways to maximize its total revenue and minimize its cost. You should also consider the difference between short and long run. In the short run, at least one of the costs is fixed. In the long run, all costs can be changes, i.e., all costs are variable. A review of the IBISWorld Industry Report on the frozen food production in the US can also help you answer this question. The cost functions affect the profit. The cost functions are to be used to answer question 4 as well.
- Using the provided cost data for the firm, determine whether the firm is making a profit or a loss by charging the equilibrium price determined in Assignment 1.
- Calculate the total revenue.
- Calculate the total cost.
- Find the difference between TR and TC, which is the profit or the loss.
- Review the section “Cost Structure Benchmarks” (p. 22) in the IBISWorld report.
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