Question

2. Consider a perfectly competitive firm with total costs ?? = ? + ?? + ??2...

2. Consider a perfectly competitive firm with total costs ?? = ? + ?? + ??2

a) Identify the fixed cost ??, and the variable cost of this firm, ??(?). (Each of them is just a part of the total cost.)

b) Find the average cost ??(?), and the marginal cost ??(?).

c) Long-run supply. Find the minimum of the ??(?) curve, which constitutes the “shutdown price” in a long-run setting. Use this “shut-down price” to describe the firm’s long-run supply curve.

d) Evaluate the long-run supply curve at ? = 10, ? = 4, and ? = 2.

e) Short-run supply curve. Use your results from part (a) to find the average variable cost function. Find the minimum of the ???(?) curve, which constitutes the “shutdown price” in a short -run setting. Use this “shut-down price” to describe the firm’s short-run supply curve.

f) Evaluate the short-run supply curve at ? = 10, ? = 4, and ? = 2

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