1 Problem 4 - A firm's optimal output choice (10 points) Consider a price taking firm,...

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1 Problem 4 - A firm's optimal output choice (10 points) Consider a price taking firm, where the market price for the output is given by P. The firm's output choice is denote by Q. The firm has a cost function, (9+Q if Q>0 C(Q) = if Q=0. The cost function reflects the presence of an avoidable fixed cost of production of 9, meaning that if the firm chooses not to produce at all, Q = 0, it does not pay the fixed cost, but as soon as it chooses to operate, it incurs a fixed cost of 9 in addition to the variable cost of Q/4. 1. Determine the firm's supply curve, Q(P), meaning the firm's profit maximizing choice of output given output price P. Draw the supply curve in a diagram with Q on the horizontal axis and P on the vertical axis. 1 Problem 4 - A firm's optimal output choice (10 points) Consider a price taking firm, where the market price for the output is given by P. The firm's output choice is denote by Q. The firm has a cost function, (9+Q if Q>0 C(Q) = if Q=0. The cost function reflects the presence of an avoidable fixed cost of production of 9, meaning that if the firm chooses not to produce at all, Q = 0, it does not pay the fixed cost, but as soon as it chooses to operate, it incurs a fixed cost of 9 in addition to the variable cost of Q/4. 1. Determine the firm's supply curve, Q(P), meaning the firm's profit maximizing choice of output given output price P. Draw the supply curve in a diagram with Q on the horizontal axis and P on the vertical axis.

Answer rating: 100% (QA)

To determine the firms supply curve QP we start by finding the profitmaximizing o... View the full answer