Question

Firm Supply (Chapter 23 in the book) Problem 3. A competitive firm's short-run cost function is c() - y - 8y2 + 30y + 5. The marginal cost of this cost function is MC() - 3y2-16y + 30. (a) What is the firm's average variable cost function, AVC(y)? (b) On the graph, plot and label average variable cost AVC(y) and marginal cost MC(y) functions. (c) Average cost is decreasing as output rises if output is less than what number? (d) Average cost is increasing as output rises if output is greater than what number? (e) For what non-zero value of output, marginal cost is equal to the average variable cost? (1) What is the price level, below which the firm will supply zero output? (g) What is the smallest positive amount that the firm will ever supply at any price?

Answer 1

cost (TFC) cly)- y - sye +30y + 5. Mcy) 2 37 - (by + 30. Car Total cost = Tatal variable Cost (TV) + Total fixed - Aucly) - Tvely) = y ² - 84²+ Boy - y - dy +30. & In the diagram Me d represent the marginal cost cuwe and Ava represents Mg Variable Cost AUC The Average turve. & The point of inflection of Ť Output Ас - ЭВсе о Ас я lupo da ( 9 -py +30+)o. 2y - 8 - 2 20. dy * By-520. AC t nu al 864-4x2x1-5) 2x2 2 87 564 +40 a 4.5 Ť Output write anerage cost is & Output is less than 4.s units, then decreasing write, then anenage east is d) As output is greater than 4.s increasing