EverKleen Pool Services provides the weekly swimming pool maintenance in Atlanta. Dozens of firms provide this service and the service is very standardized (so the market can be assumed to be perfectly competitve for modeling purposes). The market price for a one month pool service contract is $115.
EverKleen Pool Services has fixed costs of $3,500. The manager of the company has estimated the following marginal cost function, using data for the last two years. SMC=125-0.42Q+0.0021Q^2
a. Given the esimated marginal cost function, what is the average variable cost function for Everkleen?
b. At what output level does AVC reach its minimum value? What is the value of AVC at this point?
c. Should the manager of EverKleen continue to operate or should the firm shut down? Explain.
d. What is the level of output that is optimal for EverKleen? (Note: you will find 2 output levels that are solutions to your optimazation specification. Make sure to test which was is actually the optimal level of output)
e. How much profit (or loss) can the manager of EverKleen Pool Services expect to earn?
f. Suppose EverKleen’s fixed costs rise to $4,000. How does this affect the optimal level of output? Explain