Answered: Write the expressions for the MC, AVC…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

a) Write the expressions for the MC, AVC and ATC at Smell the Roses. In a diagram, draw the MC, AVC and ATC curves you found. (Keep in mind that the MC and AVC curves in this example are straight lines.)

The market for cut flowers is perfectly competitive. On weekdays, the florist can sell bouquets at a unit price of $40.

b) Should the florist stay open on weekdays? If so, how many bouquets should it sell to maximize profit? Would the florist be profitable on weekdays?

On weekends, the market price of a bouquet drops to $20.

c) Should a typical florist stay open for business? If, so how many bouquets should it sell to maximize profit? Would the florist be profitable on weekends?

Problem 1
Smell the Roses is a small flower stand with a total cost of TC = q? +10q + 144.
In the short run, the recurring fixed cost is entirely sunk.

Expert Solution

Step 1

MC, AVC, ATC are found out:

$\begin{array}{rcl} MC & = & \frac{d (TC)}{dq} = \frac{d (q^{2} + 10 q + 144)}{dq} \\ = & 2 q + 10 \\ AVC & = & \frac{TVC}{q} = \frac{q^{2} + 10 q}{q} \\ = & q + 10 \\ ATC & = & \frac{TC}{q} = \frac{q^{2} + 10 q + 144}{q} \\ = & q + 10 + \frac{144}{q} \end{array}$

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