Question

Consider again Problem 7. If Dan's cost increases by $2 per pizza, so that his cost function becomes C(Q) = 6Q + (Q2/40) and his marginal cost becomes MC = 6 + (Q/20), how will his supply function change?

(consider this question to answer problem 8: Problem 7: Suppose Dan's cost of making pizzas is C(Q) = 4Q + (Q2/40), and his marginal cost is MC = 4 + (Q/20). Dan is a price taker. What is Dan's supply function? What if Dan has an avoidable fixed cost of $10?)

Answer 1

Answer:
The supply function mentioned is determined by the equality of marginal cost and price.

So before the altar, his supply function was
P = 4 + Q/20

After the altar, his supply function was
P = 6 + Q/20

Only the intercept of price changes as a result of increment in cost. Slope coefficient stay the same.
So we have new price for every quantity = 2 + old price.

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