Kelson Electronics, a manufacturer of DVRs, estimates the following relation between its marginal cost of production and monthly output: MC=$150 + 0.005Q
a) What does this function imply about the effect of the law of diminishing returns on Kelson’s short-run cost function?
b) Calculate the marginal cost of production at 1,500 , 2,000 , and 3,500 units of output/
c) Assume Kelson operates as a price taker in a competitive market. What is this firm’s profit-maximizing level of output if the market price is $175?
d) Compute Kelson’s short-run supply curve for its product.
Sample Solution
