Consider a price-taking firm in the competitive industry for raw chocolate. The market demand and supply functions for a raw chocolate are estimated to be:CHOC Demand Q= 10,000 -10,000P + 2MCHOC Supply Q = 40,000 + 10,000P – 4,000P(1)where Q is the number of 10 pound bars per month, P is the price of a 10 pound bar of raw chocolate, income is M, and P is the price of cocoa (the primary ingrediant input) The manager of ABC cocoa products uses time-series data to obtain the following forecasted values of M and P(1) for 2005:M = $25,000 and P(1) = $10The manager of ABC Cocoa also estimates its total variable cost function to be:TVC = 3.0Q – .0027Q^2 + .0000009Q^3Fixed Costs at ABC will be $1,600 in 2005.A) Determine the equilibrium price and quantity of raw chocolate in 2005.B) Calcualte the price elasticity of demand at the equilibrium price and quantity. C) Should ABC cocoa produce or shut down? ExplainD) if it produces, what should the optimal price level of production for the firm?E) Calculate Economic profit for ABC.
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