Question

11. Problems and Applications Q11 Suppose that each firm in a competitive industry has the following costs Total Cost: TV-50 + 2 Marginal Cost: MCq where 9 is an individual firm's quantity produced. The market demand curve for this product is: Demand QD 160-4P Type here to search

Answer 1

(a) Averge total cost (ATC) = TC / q = (50/q) + (q/2)

(b) Marginal cost (MC) = q. The ATC and MC schedule is as follows.

q	MC	ATC
5	5	12.50
6	6	11.33
7	7	10.64
8	8	10.25
9	9	10.06
10	10	10.00
11	11	10.05
12	12	10.17
13	13	10.35
14	14	10.57
15	15	10.83

(c) ATC is minimum (= 10.00) when q = 10

(d) Firm's supply curve is its MC function, so

Firm supply curve: P = q

(e) In long run, firm will remain in market and will produce if Price is not less than ATC (alternate answers may be: If price is equal to or more than ATC, or If Total revenue is more than or equal to total cost, or If economic profit is zero or positive).