1 The Colorado College Department of Economics and Business Block 7 Econ 207 HW 7. 1. Beth’s lawn mowing service is a small business that acts as a price taker (P=MC). The prevailing price of lawn mowing is $20 per acre. Costs of using it is given by: Total cost = 0.1q 2 + 10q + 50 (a) How much acres should Beth choose to mow in order to maximize profit? (b) Calculate Beth’s maximum weekly profit. (c) Graph these results and label Beth’s supply curve. (2+2+2 = 6 points) 2. A local pizza shop has hired a consultant to help it compete with national chains in the area. Because most business is handled by these business chains, the local shop operates as a price taker. Using historical data on costs, the consultant finds that short-run total cost is given by STC = 10+q+0.1q 2 (a) What is this price taking firm’s short-run supply curve? (b) What is the AVC curve for the firm? Does the firm have a shutdown price? (c) Calculate this shop’s short-run average total costs. The firm claims that SAC reaches
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