DescriptionAssignment 2B
Production Practice Questions
1) Consider the following total cost function for Firm A: TC(Q)=3Q2+4Q+1000.
a) Does this cost function satisfy the law of diminishing returns?
b) Calculate TVC, AVC, TFC, AFC, AC.
c) Suppose that the firm’s demand curve is given by p=40. How much should this firm produce
to maximize its profit?
d) What is the firm’s short-run supply curve?
2) Consider the following total cost function for Firm A: TC(Q)=4Q3-12Q2+2Q+1,000,000.
a) Does this cost function satisfy the law of diminishing returns?
b) Calculate TVC, AVC, TFC, AFC, AC.
c) Suppose that the firm’s demand curve is given by p=2. How much should this firm produce
to maximize its profit?
d) What is the firm’s Short-run supply curve?
e) What is the firm’s shut down point?
3) What happens to a competitive firm whose cost function exhibits decreasing marginal cost
everywhere? Construct a concrete cost function of this type and carry out the search for the
profit maximizing output.
4) Show that at the profit-maximizing quantity for a perfectly competitive firm, MC should have a
positive slope.
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