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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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