A2-5. Suppose a firm operating in a perfectly competitive industry has costs in the short run given by: SRTC = 8 + ½q? and therefore MC = q. (a) Derive expressions for fixed costs (FC), those that do not vary with output, variable costs (VC), those that do vary with output, average variable cost (AVC), and average total cost (ATC). (b) At what quantity is AVC at its minimum (at what AVC level)? At what quantity is ATC at its minimum (at what ATC level)? Calculate ATC at q = 2 and q = 8 and sketch MC, AVC and ATC between q = 0 and q = 8. (c) Assuming that the firm is a price-taker operating in a competitive market, derive an expression for the firm's supply curve, (the profit maximizing output for the firm as a function of the market price, i.e., q° = f{p). Assuming the firm is one of 100 identical firms in the industry, what is the short-run supply curve for the industry, i.e., Qº = Ap)? If demand is given by Qº = 1000 – 100p, what are the short-run equilibrium price, market quantity, and firm quantity? Is this a long-run equilibrium? [Hint: Calculate firm profit in the equilibrium.] (d) If the minimum point of the short run ATC curve for all firms (existing and potential) is also the minimum point of the long run average cost curve (LRAC), calculate the long-run equilibrium price, market quantity, and firm quantity. What is the long-run equilibrium number of firms in the industry?
A2-5. Suppose a firm operating in a perfectly competitive industry has costs in the short run given by: SRTC = 8 + ½q? and therefore MC = q. (a) Derive expressions for fixed costs (FC), those that do not vary with output, variable costs (VC), those that do vary with output, average variable cost (AVC), and average total cost (ATC). (b) At what quantity is AVC at its minimum (at what AVC level)? At what quantity is ATC at its minimum (at what ATC level)? Calculate ATC at q = 2 and q = 8 and sketch MC, AVC and ATC between q = 0 and q = 8. (c) Assuming that the firm is a price-taker operating in a competitive market, derive an expression for the firm's supply curve, (the profit maximizing output for the firm as a function of the market price, i.e., q° = f{p). Assuming the firm is one of 100 identical firms in the industry, what is the short-run supply curve for the industry, i.e., Qº = Ap)? If demand is given by Qº = 1000 – 100p, what are the short-run equilibrium price, market quantity, and firm quantity? Is this a long-run equilibrium? [Hint: Calculate firm profit in the equilibrium.] (d) If the minimum point of the short run ATC curve for all firms (existing and potential) is also the minimum point of the long run average cost curve (LRAC), calculate the long-run equilibrium price, market quantity, and firm quantity. What is the long-run equilibrium number of firms in the industry?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
I just need the answer for d.
![A2-5. Suppose a firm operating in a perfectly competitive industry has costs in the short run given by:
SRTC = 8 + ½q? and therefore MC = q.
(a) Derive expressions for fixed costs (FC), those that do not vary with output, variable costs (VC),
those that do vary with output, average variable cost (AVC), and average total cost (ATC).
(b) At what quantity is AVC at its minimum (at what AVC level)? At what quantity is ATC at its
minimum (at what ATC level)? Calculate ATC at q = 2 and q = 8 and sketch MC, AVC and ATC
between q = 0 and q = 8.
(c) Assuming that the firm is a price-taker operating in a competitive market, derive an expression for
the firm's supply curve, (the profit maximizing output for the firm as a function of the market price,
i.e., q = fp). Assuming the firm is one of 100 identical firms in the industry, what is the short-run
supply curve for the industry, i.e., Q = Ap)? If demand is given by Q = 1000 – 100p, what are the
short-run equilibrium price, market quantity, and firm quantity? Is this a long-run equilibrium?
[Hint: Calculate firm profit in the equilibrium.]
(d) If the minimum point of the short run ATC curve for all firms (existing and potential) is also the
minimum point of the long run average cost curve (LRAC), calculate the long-run equilibrium price,
market quantity, and firm quantity. What is the long-run equilibrium number of firms in the
industry?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F338e3563-384b-43aa-9b1b-c92bed75b17f%2Fccfae553-715a-4f4d-b9db-e88e7dff1037%2Fdxbr04_processed.png&w=3840&q=75)
Transcribed Image Text:A2-5. Suppose a firm operating in a perfectly competitive industry has costs in the short run given by:
SRTC = 8 + ½q? and therefore MC = q.
(a) Derive expressions for fixed costs (FC), those that do not vary with output, variable costs (VC),
those that do vary with output, average variable cost (AVC), and average total cost (ATC).
(b) At what quantity is AVC at its minimum (at what AVC level)? At what quantity is ATC at its
minimum (at what ATC level)? Calculate ATC at q = 2 and q = 8 and sketch MC, AVC and ATC
between q = 0 and q = 8.
(c) Assuming that the firm is a price-taker operating in a competitive market, derive an expression for
the firm's supply curve, (the profit maximizing output for the firm as a function of the market price,
i.e., q = fp). Assuming the firm is one of 100 identical firms in the industry, what is the short-run
supply curve for the industry, i.e., Q = Ap)? If demand is given by Q = 1000 – 100p, what are the
short-run equilibrium price, market quantity, and firm quantity? Is this a long-run equilibrium?
[Hint: Calculate firm profit in the equilibrium.]
(d) If the minimum point of the short run ATC curve for all firms (existing and potential) is also the
minimum point of the long run average cost curve (LRAC), calculate the long-run equilibrium price,
market quantity, and firm quantity. What is the long-run equilibrium number of firms in the
industry?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education