Answer to Question #116144 in Microeconomics for Farida ali

Question

na owns a firm in a compeitive industry that consists of a large number of firms, each
of which has the same cost function of the form:
c(w1, w2, y) = (y2+1)w1 + (y2+2)w2. Given these information, answer the following
questions:
a) Find the average cost curve of Dina’s firm and describe how it shifts as the factor
price w1/w2 changes.
b) Find the short-run supply curve of Dina’s firm.
c) Find the long-run industry supply curve.

Answer 1

a) The average cost curve of Dina’s firm is:

$AC = c/q = \frac{(y2+1)w1 + (y2+2)w2}{q}.$

It shifts upwards as the factor price w1/w2 increases and vice versa. 

b) The short-run supply curve of Dina’s firm is the part of MC curve after the intersection with AVC curve. So, S = MC = c'(q).

c) The long-run industry supply curve is the sum of all firm's supply curves.