Question

Consider a competitive rm with total costs given by T C(q) = 100 + 10q + q 2 The rm faces a market price p = 50. (a) Write expressions for total revenue T R and marginal revenue MR as functions of output q. (b) Write expressions for average total cost AT C, average variable cost AV C, and marginal cost MC as functions of output q. (c) For what value of output is AT C minimized? 1 (d) Find the prot maximizing level of output q ∗ . At this level of output, what are T R, T C, AT C, and π? (e) Graph the AT C, AV C, MC, and MR curves in a single graph, and indicate the prot maximizing level of output. If there are prots, shade the region corresponding to prot and label it. (f) If xed costs increase from 100 to 500, what happens to the prot maximizing level of output, T R, T C, and π? (g) If xed costs increase from 100 to 500, should the rm continue to operate in the short-run? What about the long-run?

Answer 1