Question
Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be: Demand: Q
Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:
Demand:Qd= 10,000 10,000P + 1.0M
Supply: Qs= 80,000 + 10,000P 4,000P1
where Q is quantity, P is the price of the product, M is income, and P1 is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and P1 for 2021:
M = $50,000 andP1= $20
The manager also estimates the average variable cost function to be
AVC = 3.0 0.0027Q + 0.0000009Q2
Total fixed costs will be $2,000 in 2021. The minimum value of average variable cost is $_____.
$2.15
$1.00
$0.975
$0.75
$0.50
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