Your firm produces fibers used in the production of clothing. Your inputs are raw materials, labor, and capital (including your building and your machines). There are many firms producing the same fibers and the price is determined by supply and demand. That is, you are in a very competitive industry. Your estimate of short run total cost is equal to C(q) = 10+2q+.1q ² .

(a) As a function of your output, q, what is your fixed cost? What is your variable cost?

(b) As a function of your output, q, what is your marginal cost? What is your average total cost? What is your average variable cost?

(c) Assuming you maximize profits given that the market price is 4, what is your output, and what is your profit?

(d) If the price falls to 3, how much will your firm produce in the short run? Is your firm covering variable cost?