A. As the market is perfectly competitive, the profit maximizing level of output is where Price = marginal cost
Marginal cost = $0.02+0.00000036Q
P = 20¢ = $ 0.20
P = MC
0.20 = 0.02 + 0.00000036* Q
0.18 = 0.00000036*Q
Q = 500,000
So, supply for a typical grower in the short run, Q = 500,000.
B.
The average variable curve is determined by dividing total variable cost by output:
AVC - 15,000/Q + 0.02 +0.00000018Q
At the Q= 500,000
AVC = 15,000/500,000 + 0.02 +0.00000018*500,000
AVC = 0.14
Because P = MR = MC = 0.20 and P > AVC ( 0.20 >0.14) at the 500,000 pounds per year.
This proof that AVC is less than Price at the optimal activity level.
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