Question

Chapter 9 Profit Maximization instructions I help Question 4 (of 7) d i 6 Save & Exit Submit 4. value: 0.28 points A price-taking firm's variable cost function is VC = 203, where Q is its output per week. It has a sunk fixed cost of $4,000 per week. Its marginal cost is MC = 602 a. What is the firm's supply function when the $4,000 fixed cost is sunk? Instructions: Enter your answer as a whole number. Q = (P/6)0.5 for P>$ b. What is the firm's supply function when the fixed cost is avoidable? Instructions: Enter your answer as a whole number. Q = (P/6)0.5 for P>$ eBook & Resources 9.3 SUPPLY DECISIONS BY PRICE-TAKING FIRMS

Answer 1

a) P$\geq$$0 [Minimum value of Average variable cost is $0]

b) P$\geq$$600 [Minimum value of Average Cost is $600]

Uc=283 MC = 60² is cost sunk cost a $4000 fixed ut down. Sunk cost is unavoidable. It meams from the pay that cost even if it womts to shut dow A once taking from in this case operates when the market price is greader than or equal to the Average variable cost (AUC). That is firm has to be at least able to recover the vanalle costy - Ave = vc - AVC= 20² Q = 0. 1ozol minimum of 20² is when - at Q 20, 20² = 0. Therefore, the firm operates when pzo. Alote : A price taking from's supply curre is the peut of marginal Cost ceere that lies above the minimum of Average variable cost curre]. Firm's supply come į iQ=2 for P > $0.

Fixed cost It meams it wants $4000 is avoidable from doesmot have to shut down. to pay 84000 if So in this case, firm will coomt to operate only when its total cost are covered free valuable and faed Costs Because If total costs are not covered, it is bettel for the firm to shut down and save fire $4000 lost. - Total Cost (TC) : vct Ac = 203 + 4000 from recovers its total greater than or equal Avercege cost (AC) coste when price is to the minimum of AC= TO - -) AC = 202 +4000 minimum of AC =) d (AC) elo 4Q - 4000 -0 - = 40² = 4ooo 10 At Q=10, AC = 2001+ 4000 - 600 The minimum value of AC = $600. is Supply Therefore when freed cost curve is Q = (pros for avoidabe from Is p = $600. 16