PS4 (2) - Problem Set 4 Econ 100A Spring 2013 Due in class PROBLEM 1 A producer of hand-made furniture has a cost function of TC(q)=4000 3000q4q2 0.8q3

# PS4 (2) - Problem Set 4 Econ 100A Spring 2013 Due in class...

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Problem Set 4 Econ 100A – Spring 2013 Due in class 04/03/2013 PROBLEM 1 A producer of hand-made furniture has a cost function of TC(q)=4000+3000q- 4q 2 +0.8q 3 a. Find the fixed costs, variable costs, average fixed costs, average variable costs and marginal costs of the firm. b. Graph MC, ATC, AVC and AFC on the same graph c. Find the shutdown price and corresponding quantity. d. Suppose the company is a price-taker, and the market price is \$3000 in the short-run . Will the company produce? Explain your answer mathematically. If it produces, how many units of furniture will the company produce? e. Derive the short-run market supply curve f. What is the long-run supply of the firm, assuming it has constant input prices, the industry is competitive and there is free entry to the market. PROBLEM 2 Consider an industry with three firms, with cost functions of TC(q) = 10q 2 + 1000 TC(q) = 20q 2 + 500 TC(q) = 25q 2 + 400 a. Compute and graph the supply curve for each firm (on a single graph). Make sure to take into account the shut-down decisions of each firm.

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