[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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This question was answered on: Sep 18, 2020

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