Question
In: Economics
Consider a firm that operates in the perfectly competitive salmon farming industry. The short-run total cost...
Consider a firm that operates in the perfectly competitive salmon farming industry. The short-run total cost curve is TC(Q)=250+3Q+Q2 , where Q is the number of salmon harvested per month.
-
What is the equation for the average variable cost (AVC)?
-
Solve for the firm's operation condition, MC≥AVC.
-
Assuming MC≥AVC, what is the firm's short-run supply curve? Find the supply function, NOT the inverse supply function.
-
In light of the answer in part 2, What is the minimum price at which the firm operates?
Solutions
Expert Solution
TC = 250 + 3Q + Q2
TVC = 3Q + Q2
AVC = TVC/Q
= ( 3Q + Q2 )/Q
= 3 + Q
AVC = 3 + Q
MC = dTC/dQ = 3 + 2Q
MC = 3 + 2Q
MC 
AVC
3 + 2Q
3 + Q
subtracting 3 on both sides
2Q
Q
subtracting Q on both sides
2Q - Q
Q - Q
Q
0
Short run supply curve is given as
P = MC
P = 3 + 6Q
P - 3 = 6Q
Q = P/6 - 3/6
Q = P/6 - 1/2
The minimum price at which firm operates is given by
P = min.AVC and MC
AVC
AVC is minimum where MC = AVC
3 + 2Q = 3 + Q
2Q - Q = 3 - 3
Q = 0
min.AVC = 3 + 0 = 3
So minimum price at which firm operates is P
3
Rahul Sunny answered 2 years agoRelated Solutions
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