Question
A firm sells its output in a perfectly competitive industry where the price is $80 per unit. The firm estimates its total cost function to
A firm sells its output in a perfectly competitive industry where the price is $80 per unit. The firm estimates its total cost function to be () = 200 + 80 10 2 + 3.
a. Complete the table below and graph the cost curves using Excel. Provide the formulas used to calculate each column of the table below.
Q | MC | AVC | ATC |
1 | |||
2 | |||
3 | |||
4 | |||
5 | |||
6 | |||
7 | |||
8 | |||
9 | |||
10 | |||
11 | |||
12 |
b. What is the profit maximizing level of Q?
c. Should the firm stay in business in the short run? Explain.
d. Should the firm stay in business in the long run? Explain.
e. How do your answers change if the price rises to $150?
f. What is the equilibrium price in the long run?
g. Illustrate a new graph when price is $150 using Excel. Explain how to create this graph using Excel.
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