Ans_Quiz4 - P = MC or Q P = 40 This means that each...

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Answer to Quiz 4 a) All the fixed costs are sunk. Therefore, the firm will not produce any output when the price falls below the point where SMC = AVC , i.e. the minimum of the AVC curve. Therefore Q Q + = + 40 5 . 0 40 This implies Q = 0. The corresponding price, below which the firms will not produce, is equal to MC (10) = AVC (10) = 40. b) Each firm will produce according to the relation,
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Unformatted text preview: P = MC , or Q P + = 40 . This means that each firm’s supply curve is 40-= P Q if P > 40 and zero if P < 40. Therefore market supply equals ) 40 ( 12-P and in equilibrium this must equal market demand, P 2 360-. Therefore the equilibrium price is P = 60. At this price, each firm produces 20 units of output....
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This note was uploaded on 01/30/2011 for the course 730 368 taught by Professor Bryant during the Spring '08 term at Rutgers.

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