In a perfectly competitive industry, there are 10 firms of type one and 10 firms of type B. Firms of type one have a total cost of TCA(qA) = qA2 + 20qA + 100.

a. In a diagram, draw the MC, AVC and ATC curves of this type of firm.

Firms of type B, have a total cost function TCB(q) = qB2 + 10qB + 50.

b. Suppose the market price is p = $50. How many units of output does the typical firm of type B produce?

At firms of type one, the whole fixed cost is sunk in the short run. At firms of type B, 50% of the fixed cost is sunk in the short run. Suppose that during the summer months demand in this industry is much lower than during the rest of the year.

c. Is one type of firm more likely to shut down for the summer months than the other? Clearly justify your answer.