Question

Assume that all firms in a competitive industry have cost curves given by the following: TC = 100+10q +4q2. In the short run the price at which a firm shuts down is: o 2. o 4. O O 10. O Additional information about market demand is required to answer this question. Question 2 1 pts Assume that all firms in a competitive industry have cost curves given by the following: TC = 100+10q +4q2. In the long run the equilibrium price equals: O 10. O 30. O 50. O 100. O Additional information about market demand is required

Answer 1

(1) (D)

Shut-down price = Minimum AVC

TVC = 10q + 4q²

AVC = TVC/q = 10 + 4q

AVC is minimized when q = 0, and Shut-down price = Minimum AVC = 10 + 4 x 0 = 10

(2) (C)

In long run equilibrium, P = AC = MC.

AC = TC/q = (100/q) + 10 + 4q

MC = dTC/dq = 10 + 8q

(100/q) + 10 + 4q = 10 + 8q

100/q = 4q

q² = 25

q = 5

P = MC = 10 + 8 x 5 = 10 + 40 = 50