Supply Curve Determination
Information Technology, Inc., is a supplier of math coproces- sors (computer chips) used to speed the processing of data for analysis on personal computers. Based on an analysis of monthly cost and output data, the company has estimated the following relation between the marginal cost of production and monthly output:
MC = $100 + $0.004Q
A. Calculate the marginal cost of production at 2,500, 5,000, and 7,500 units of output.
B. Express output as a function of marginal cost. Calculate the level of output when MC = $100, $125, and $150.
C. Calculate the profit-maximizing level of output if wholesale prices are stable in the industry at $150 per chip and, therefore, P = MR = $150.
D. Derive the company's supply curve for chips assuming P = MR. Express price as a function of quantity and quantity as a function of price.