4. Shutdown price. Consider a firm that washes cars and has a cost function C(q) = 2q² +7q+10, where q denotes the number of cars washed. Intuitively, the first two terms capture the firm's vari- able cost, because they depend on the output the firm produces, whereas the last term represents its fixed cost, because it is not a function of output q. (a) Find the firm's marginal cost curve, its average cost curve, its average variable cost curve, and its average fixed cost curve. (b) Assume that the firm operates in a perfectly competitive industry, taking a príce of p= $18 as given. Which output level does the firm choose in this scenario? (c) What if the price of output decreases to p= $11? (d) For which price will the firm choose to shut down its operations?

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Profit Maximization

Economic activity is related to the use of scarce resources of the economy that are used for producing goods and services which are required to satisfy various demands of the people. In other words, it can be said that it is all about satisfying the unlimited demands of individuals with the limited resources available. The production decision is taken by the producers or the firms. In economics, the terms ‘producers’, ‘suppliers’, and ‘firms’ are interchangeable. Now the question arises, what does a firm actually mean?