1. Modeling Questions – Cost Functions and Profit Maximization A perfect competitive firm’s short-run cost function...

1. Modeling Questions – Cost Functions and Profit Maximization

A perfect competitive firm’s short-run cost function is estimated to be

Cy=10+18 y-4y2+0.6y3 ,

where y is the output, C(y) is the total cost.

a.(2’) What is the firm’s short-run fixed cost?

b.(2’) What is the firm’s short-run variable cost function?

c.(12’) Derive the functions of MC, AVC, AFC, and AC.

d Carefully graph your functions in the following combinations:

TC, FC, and VC vs. y on a single graph.

AC, AFC, AVC, and MC vs. y on a single graph.

(4’) On the graph (ii) at the bottom, label clearly the minimum AVC point and explain why MC curve crosses AVC curve at its minimum.

(20’) Given the output price is p, set up the output-side profit-maximization problem and find the product supply function.

Solutions

Expert Solution

The table which was used to create the plots is as shown below.

The formula view of the calculations is shown below.

Rahul Sunny answered 1 year ago

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