Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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please answer d
![A2-5. Suppose a firm operating in a perfectly competitive industry has costs in the short run given by:
SRTC = 8 + ½q² 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 fim 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 = {p)? 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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1652026a-6ba6-42d7-9e35-ad3e7516e1ec%2Fba1f5a08-18e6-43b2-8c40-4ec0ad3bc7bf%2F97zb9m_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 + ½q² 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 fim 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 = {p)? 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?
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