(Answered) The market demand for a monopoly firm is estimated to

Engineering

The market demand for a monopoly firm is estimated to be:

Q_d = 80,000 -400P + 3M + 2000P_R

where Q is output, P is price, M is income, and P_R is the price of a related good. The manager has forecasted the values of M and P_R will be $60,000 and $15, respectively, in 2008.

The average variable cost function is estimated to be

AVC = 725 - 0.01 Q + 0.000001 Q ²

Total fixed cost in 2008 is expected to be $50,000.

The manager should

shut down; P = $362.50 < TVC = $820

shut down; P = $712.50 < AVC = $725

operate; P = $725 > AVC = $700

operate; P = $712.50 > AVC = $700

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