d) What is level of output corresponding to the minimum level of Ron's average variable cost curve? [Hint: At the minimum level of the average variable cost curve, it crosses with the short-run marginal cost curve. Set AVC (q) = SMC(q) and solve for q] e) Find Ron's shutdown price. [Hint: The shutdown price when all fixed costs are sunk is given by the minimum level of the average variable cost curve. Plug the value of q you found in part (d) into the AVC(q). You have found the shutdown price for Ron] f) Find Ron's short-run supply curve. [Hint: Use the shutdown down price found in part (e). Ron's supplies the profit-maximizing quantity when price is equal or higher than the shutdown price, and zero otherwise]
d) What is level of output corresponding to the minimum level of Ron's average variable cost curve? [Hint: At the minimum level of the average variable cost curve, it crosses with the short-run marginal cost curve. Set AVC (q) = SMC(q) and solve for q] e) Find Ron's shutdown price. [Hint: The shutdown price when all fixed costs are sunk is given by the minimum level of the average variable cost curve. Plug the value of q you found in part (d) into the AVC(q). You have found the shutdown price for Ron] f) Find Ron's short-run supply curve. [Hint: Use the shutdown down price found in part (e). Ron's supplies the profit-maximizing quantity when price is equal or higher than the shutdown price, and zero otherwise]
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Show full answers and steps to part d) e) & f)
![**Exercise 5:**
Ron’s Window Washing Service is a small business that operates in the perfectly competitive residential window washing industry in Evanston, Illinois. The short-run total cost curve is \( STC(q) = 40 + 10q + 0.1q^2 \), where \( q \) is the number of windows washed per day. All fixed costs are sunk (unrecoverable).
**a)** Find Ron’s short-run marginal cost curve, \( SMC(q) \), and average variable cost curve, \( AVC(q) \).
**b)** How many units of output should Ron produce each month to maximize profits if the market price is \( p = \$20 \)? [Hint: Use the profit-maximizing condition]
**c)** What is Ron’s maximum monthly profit? [Hint: Use the profit function]
**d)** What is the level of output corresponding to the minimum level of Ron’s average variable cost curve? [Hint: At the minimum level of the average variable cost curve, it crosses with the short-run marginal cost curve. Set \( AVC(q) = SMC(q) \) and solve for \( q \)]
**e)** Find Ron’s shutdown price. [Hint: The shutdown price when all fixed costs are sunk is given by the minimum level of the average variable cost curve. Plug the value of \( q \) you found in part (d) into the \( AVC(q) \). You have found the shutdown price for Ron]
**f)** Find Ron’s short-run supply curve. [Hint: Use the shutdown price found in part (e). Ron supplies the profit-maximizing quantity when price is equal or higher than the shutdown price, and zero otherwise]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa3574180-5be7-46af-9f18-c1fbb9ec682c%2Fce7f12fd-ab72-42c9-8eab-07dc63e11b7d%2Fxvbcv8d_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Exercise 5:**
Ron’s Window Washing Service is a small business that operates in the perfectly competitive residential window washing industry in Evanston, Illinois. The short-run total cost curve is \( STC(q) = 40 + 10q + 0.1q^2 \), where \( q \) is the number of windows washed per day. All fixed costs are sunk (unrecoverable).
**a)** Find Ron’s short-run marginal cost curve, \( SMC(q) \), and average variable cost curve, \( AVC(q) \).
**b)** How many units of output should Ron produce each month to maximize profits if the market price is \( p = \$20 \)? [Hint: Use the profit-maximizing condition]
**c)** What is Ron’s maximum monthly profit? [Hint: Use the profit function]
**d)** What is the level of output corresponding to the minimum level of Ron’s average variable cost curve? [Hint: At the minimum level of the average variable cost curve, it crosses with the short-run marginal cost curve. Set \( AVC(q) = SMC(q) \) and solve for \( q \)]
**e)** Find Ron’s shutdown price. [Hint: The shutdown price when all fixed costs are sunk is given by the minimum level of the average variable cost curve. Plug the value of \( q \) you found in part (d) into the \( AVC(q) \). You have found the shutdown price for Ron]
**f)** Find Ron’s short-run supply curve. [Hint: Use the shutdown price found in part (e). Ron supplies the profit-maximizing quantity when price is equal or higher than the shutdown price, and zero otherwise]
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