Answer to Question #240045 in Economics for Ashe

Question

In a perfect market structure, if a given firm faces average variable cost (AVC); AVC = 1/3Q²- 9/2Q² + 20

A. Determine the level of output at the minimum level AVC

B. what is the minimum price the firm willing to supply?

c. What is the loss of the firm at the minimum price level if the total fixed cost Is 50blrr?

D. If the price level Is 3.5blrr does the firm shut down the business or continue production?

Answer 1

A. The level of output at the minimum level AVC is when AVC'(Q) = 0.

2/3Q - 9/2 = 0,

Q = 6.75 units.

B. The minimum price the firm willing to supply is P = AVC.

c. If the total fixed cost is 50, then the loss of the firm at the minimum price level is 50.

D. If the price level is 3.5 birr, then the firm will shut down the business, because 3.5 < 6.75.