1. Aspen, Inc., is a manufacturer and distributor of digital recording decks for commercial recording studios. Revenue and cost relations are: TR = $3,000Q - $0.5Q2
MR = dTR/dQ = $3,000 - $1Q
TC = $100,000 + $1,500Q + $0.1Q2
MC = dTC/dQ = $1,500 + $0.2Q
A. Calculate output, marginal cost, average cost, price, and profit at the average cost-minimizing activity level. Explain your answers briefly.
B. Calculate these values at the profit-maximizing activity level. Explain your answers briefly.
C. Why is the level of output which maximizes profit different than the level of output which minimizes average cost? What is considered in the former case that cost minimization does not? Explain your answer well.
2. Describe each of the following statements as true or false, and explain your answers well.
A. To maximize the value of the firm, management should always produce the level of output that maximizes short run profit
B. The demand curve will be downward sloping if marginal revenue is less than price.
C. Marginal profit equals zero at the profit maximizing level of output.
D. To maximize profit, total revenue must also be maximized.
E. Marginal cost equals average cost at the average cost minimizing level of output.