Suppose a firm operating in a perfectly competitive industry has costs in the short run given by: SRTC = 8+ ½q? and therefore MC = q. (a) Derive expressions for fixed costs (FC), those that do not vary with output, variable costs (VC), those that do vary with output, average variable cost (AVC), and average total cost (ATC). (b) At what quantity is AVC at its minimum (at what AVC level)? At what quantity is ATC at its minimum (at what ATC level)? Calculate ATC at q = 2 and q = 8 and sketch MC, AVC and ATC between q = 0 and q = 8. (c) Assuming that the firm is a price-taker operating in a competitive market, derive an expression for the firm's supply curve, (the profit maximizing output for the firm as a function of the market price, i.e., q° = fp). Assuming the firm is one of 100 identical firms in the industry, what is the short-run supply curve for the industry, i.e., Q° = Ap)? If demand is given by Q = 1000 – 100p, what are the short-run equilibrium price, market quantity, and firm quantity? Is this a long-run equilibrium? [Hint: Calculate firm profit in the equilibrium.]

Suppose a firm operating in a perfectly competitive industry has costs in the short run given by: SRTC = 8+ ½q? and therefore MC = q. (a) Derive expressions for fixed costs (FC), those that do not vary with output, variable costs (VC), those that do vary with output, average variable cost (AVC), and average total cost (ATC). (b) At what quantity is AVC at its minimum (at what AVC level)? At what quantity is ATC at its minimum (at what ATC level)? Calculate ATC at q = 2 and q = 8 and sketch MC, AVC and ATC between q = 0 and q = 8. (c) Assuming that the firm is a price-taker operating in a competitive market, derive an expression for the firm's supply curve, (the profit maximizing output for the firm as a function of the market price, i.e., q° = fp). Assuming the firm is one of 100 identical firms in the industry, what is the short-run supply curve for the industry, i.e., Q° = Ap)? If demand is given by Q = 1000 – 100p, what are the short-run equilibrium price, market quantity, and firm quantity? Is this a long-run equilibrium? [Hint: Calculate firm profit in the equilibrium.]

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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