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prelim2spring2006solutions

# prelim2spring2006solutions - At p=4 solving p=mc yields...

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b. The short run cost of production is c(y)=8 for y<2 and c(y)=y^2+4 for y>2. The marginal cost is mc(y)=0 for y<2 and mc=2y for y>2. It has a vertical jump at y=2. AVC=0 for y<2 and AVC=y for y>2. Supply is 2 for p<4. There is no point in supplying less then y=2 since it can be produced at the same cost as producing y=0.
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Unformatted text preview: At p=4 solving p=mc yields 4=2y or y=2. For any price p&amp;gt;4 the firm supplies such that p=mc or y=p/2. Note that avc has a min which is zero. So the firms supplies positive quantities at any price, but the supply curve has a break point at p=4 changing from a constant y=2 to y=p/2....
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