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[answered] A perfectly competitive firm has variable costs given by VC


A perfectly competitive firm has variable costs given by VC=q^2 and fixed costs of FC=$1. Calculate output and profits if the price were P=$4. Explain whether this firm should shutdown if price falls to P=$1. Provide a labelled diagram for MC, ATC, AFC and AVC.?




1. V.C=Q^2

 

F.C=$1

 

P=$4

 

T.R=Q*P

 

=Q*4

 

=4Q

 

T.C=Q^2+1

 

PROFIT=4Q-Q^2+1

 

Partial differentiation of revenue with respect to total cost=-2q+4

 

q=2

 

profit=4Q-(Q^2+1)

 

=8-5=$3

 

V.C=Q^2

 

F.C=1

 

T.C= Q^2+1

 

P=1...

 


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