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1. Suppose that a perfectly competitive firms' Total Cost function is given by: SRTC(q) = 50 + 80q -10q2 + .6q3
a. What is fixed cost equal to? What is Variable Cost equal to?
b. What is Marginal Cost equal to? What is Average Variable Cost equal to?
c. Below which market price (a number) will this firm choose to produce 0 output?
d. Choose a market price that is between Average Cost and Average Variable Cost. Will the firm choose to produce a positive output level?
Depict this output level in a graph that includes all the appropriate curves. Explain verbally (and with numbers) whether this firm would choose to produce the output you chose.
e. What does it mean by a firm to be a price taker? What is the implication of this for the individual firms' demand curve? You must also mention in your answer the term elasticity (correctly of course).
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