2. A local business has asked an economic development consultant to help it decide if it can continue to compete with the other businesses in a city's downtown area in a very competitive market. Using historical data on costs, the consultant finds that the total cost function for this business is TC = 10 + Q + .1Q² where Q is amount of output this business produces. Given this TC function, we know that the marginal cost (MC) of production is P = 1+ .2Q. a. What are the fixed costs for this business? What is the business's variable cost function? What is the average total cost function? b. Calculate the level of output and the price of a unit of output in long run equilibrium. Sketch a graph of your solution (you do not need to precisely graph the ATC function, you just need to include a plausible version of it). c. Currently, the price of the product is $2.50 because of a recession that has hit the area. The consultant thinks the shop should immediately cease operations. Would you agree with this recommendation? Why or why not?

2. A local business has asked an economic development consultant to help it decide if it can continue to compete with the other businesses in a city's downtown area in a very competitive market. Using historical data on costs, the consultant finds that the total cost function for this business is TC = 10 + Q + .1Q² where Q is amount of output this business produces. Given this TC function, we know that the marginal cost (MC) of production is P = 1+ .2Q. a. What are the fixed costs for this business? What is the business's variable cost function? What is the average total cost function? b. Calculate the level of output and the price of a unit of output in long run equilibrium. Sketch a graph of your solution (you do not need to precisely graph the ATC function, you just need to include a plausible version of it). c. Currently, the price of the product is $2.50 because of a recession that has hit the area. The consultant thinks the shop should immediately cease operations. Would you agree with this recommendation? Why or why not?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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