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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