Question

The table below shows marginal cost and average variable cost for two firms.

1. Plot the short-run supply function for Firm A. Is there any price between 1 and 10 for which firm A would not produce?
2. Suppose that price = 3. For Firm B, there are two different quantities for which MC(Q) = 3. Which one would determine Firm B’s choice of production when price = 3? Explain.
3. If price = 1, how much would Firm B produce? Explain your reasoning.
4. Plot the short-run supply function for Firm B.
5. Plot the aggregate supply over Firm A and Firm B. (You can ignore plotting supply for Prices = 5, 7, and 9)

   	Firm A	Firm A	Firm B	Firm B
   Quantity	Marginal cost	Average variable cost	Marginal Cost	Average Variable Cost
   0	-	-	-	-
   1	1	1	3	3
   2	2	1.5	2	2.5
   3	3	2	1	2
   4	4	2.5	2	2
   5	5	2	3	2.2
   6	6	3.5	4	2.5
   7	7	4	6	3
   8	8	4.5	8	3.625
   9	9	5	10	4.333
   10	10	5.5

Answer 1