DIS 10 Handout Solutions - 1. a) In order to maximize...

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a) In order to maximize profit Ron should operate at the point where P MC = . 20 10 0.20 50 Q Q = + = b) Ron’s profit is given by TR TC π = - . 2 20(50) (40 10(50) 0.10(50) ) 210 = - + + = c) The firm’s profit is equal to the shaded area in the graph below. It is a rectangle whose height is the market price and the average cost of the 50 th unit, and whose width is the 50 units being produced. d) If all fixed costs are sunk, then ANSC = AVC = (10 Q + 0.1 Q 2 )/ Q = 10 + 0.1 Q . So the first step is to find the minimum of ANSC by setting ANSC = SMC , or 10 + 0.1 Q = 10 + 0.2 Q which occurs when Q = 0. The minimum level of ANSC is thus 10. For prices below 10 the firm will not produce and for prices above 10, its supply curve is found by setting P = SMC : 10 .2 5 50 P Q Q P = + = - The firm’s short-run supply curve is thus 0 if 10 ( ) 5 50 if 10 P s P P P < = - e) If all fixed costs are non-sunk, as in this case, then ANSC = ATC = (40/ Q ) + 10 + 0.1 Q + =
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DIS 10 Handout Solutions - 1. a) In order to maximize...

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