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Unformatted text preview: firm will not produce anything if price is below the minimum average variable cost and if price more than that, the quantity produce will follow the marginal cost curve. In order to determine the shut down price, that is, the price below which the firm will not produce anything, we need to find out the minimum average cost of the firm. We know, at minimum of average cost, marginal cost and average cost are same. That is, at minimum average cost, 6Q+5 = 12Q+5 , that is 6q=0, that is. Q = 0 when average cost has reached its minimum. Therefore, the minimum AVC = 6*0+5 =5 That is when P<0 Q s =0 (By the way, MC= 12Q+5 and AVC = 6Q+5) When price is more than the shut down price, quantity supplied will follow the MC curve. That is supply function is P = 12Q+5 . That is Q S = (P-5)/12 if P > 5 Q S = 0 if P >=5 b) At P = 29, Q S = (29-5)/12 = 2...
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- Summer '10