Answer to Question #241194 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 50birr?

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

Answer 1

A) AVC reaches it's minimum at the point where AVC'=0. So, (1/3Q^2-9/2Q^2+20)'=0; 2/3Q-9Q=0; Q=0.

B) The price should exceed average variable cost. So, minimum price is 20

C) In this case the firm loses only fixed costs, so 50birr

D)3.5<20, so the firm should shut down business