Unformatted text preview: optimal price (p*) the cartel should choose. d) Use the second order condition to show that the cartel is actually maximizing profits when it chooses this optimal quantity and price. 2) Suppose that the cost function of a firm is given by: C(q) = 100 + 5q 2 a) Find Fixed and Variable cost. b) Find marginal cost. c) Find the average cost and the average variable cost. d) Draw the relationship between MC and AC. Suppose that the firm is a price-taker and that the current market price is 100. e) Is it optimal for the firm to shut down or to continue production?...
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- Fall '07
- Economics, OPEC, optimal quantity, Professor Mazzocco Problem