Question

QUESTION #1 Lucy's lasagna is a price taker and the table below shows its costs of production. Total Cost $5 15 21 35 53 80 # of Plates TVC AVC ATC MC 0 2 4 5 (a) If lasagna sells for $14 a plate, what is Lucy's profit maximizing output? Explain. (10 points) Over what price range will Lucy leave the lasagna business? Explain. (10 points) (c) (b) Over what price range will other firms with costs identical to Lucy's enter the industry? Explain. (10 points) (d) What is the price of lasagna in the long run? Explain. (10 points)

Need answers for Part B,C and D

Answer 1

Q	TC	TVC	AVC	ATC	MC
0	5	0
1	15	10	10	15	10
2	21	16	8	10.5	6
3	35	30	10	11.66667	14
4	53	48	12	13.25	18
5	80	75	15	16	27

a) When the price is $14,set P=MC, quantity sold would be equal to 3

b) Lucy will leave the business when the price falls below its minimum AVC which is the shutdown point

so for any price below the minimum AVC which is 8,Lucy will leave the business.

c) The price range over which Lucy is making positive profits are any price level over the minimum ATC which is its breakeven point.

Since the minimum ATC is 10.5 so for any price range over it, Lucy will make positive profits which will attract new firms to the market.

d) The price of the Lasagna will be equal to the minimum ATC as in the long run,the firms in the perfect competition breaks even and earns zero profit so the price in the long run will be $10.5