Question
Any firm that wants to produce and sell electricity in New York City has a fixed cost of $1 billion per year. The marginal cost
Any firm that wants to produce and sell electricity in New York City has a fixed cost of $1 billion per year. The marginal cost (in dollars) of producing a Kilowatt Hour of electricity is:
MC(Q) = 8
a. Draw the short run supply function for this firm.
b. What is the price elasticity of supply for this firm in the short-run?
c. What should the firm do in the short-run if p=6?
d. What are the annual profits of the firm if p=8?
e. Calculate and draw the average total cost function for the firm.
f. What does this average total cost function tell us about the firm?
g. Given your answers above, why might the market for electricity not be perfectly competitive?
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