Answers part a 1 30 points henry owns a firm that

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Answers Part A 1. (30 points) Henry owns a firm that operates in a perfectly competitive market. His short run cost functions are presented in the following graph. a. (7 points) Identify the AC, MC and AVC curves on the graph. b. (8 points) If price is $25, he produces _5_ units of output and earns $__0______ as profit. c. (8 points) If price is $10, he produces __0______ units of output and earns $_-50____ as profit. d. (7 points) Identify the short run supply curve on the graph. 2. (40 points) Isabella's firms hires labor for $30 an hour and calculates that the rental cost of its machinery is $15 per hour. Suppose that the production of one unit of output requires 4 hours of labor and 2 hours of machinery in fixed proportion. a. (7 points) The isocost equation is 𝑻𝑪 = ??? + ???. b. (7 points) The production function is 𝒒 = ?𝒊𝒏( ? ? , ? ? ) . 0 1 2 3 4 5 6 7 8 9 10 0 5 10 15 20 25 30 35 40 45 50 Output Price, AC, MC, AVC MC AC AVC
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c. (26 points) Assume that Isabella's short run cost function is 𝐶(𝑞) = 50 + 0.5𝑞 + 0.08𝑞 2 . She is currently producing output that maximizes her profit at marginal cost of $8.50.
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