P10.4: Long-run Firm Supply. The retail market for unleaded gasoline is fiercely price competitive. Consider the situation faced by a typical gasoline retailer when the local market price for unleaded gasoline is $1.80 per gallon and total cost (TC) relation is:

TC = $40,000 + $1.64Q + $0.0000001Q2

and Q is gallons of gasoline. Total costs include a normal profit.

1.Using the firm's marginal cost curve, calculate the profit-maximizing long-run supply curve for a typical retailer.

2.Calculate the average total cost curve for a typical gasoline retailer, and verify that average total costs are less than price at the optimal activity level.