Biwei decides to set up a small business in NYC. The start-up cost is $1000 for a license and the estimated direct cost is $4 per output. Analyze Biwei's cost functions and answer questions. 

1) Express total cost, average cost, and marginal cost as a function of Q. Sketch their graphs. 

2) Is the initial cost of $1000 Biwei's cost? Explain. 

3 In a perfectly competitive market, Biwei's maximum production capacity is 100 units per week. The market price for the product is $4.

4. What is the economic rent per week? 

5) What is the rent per week if the market price is $3.9? Would Biwei stay in business and what determines his temporary shutdown or exit decision? 5) After one year, Biwei's business becomes profitable. Sonia plans to enter the same business in the same area. What would be the cost facing Sonia? Does she face the same cost as Biwei? 

6) What would be the market competition effect of Sonia's entry on Biwei's business? Would it reduce Biwei's cost? Would it reduce Biwei's rent? Explain. 

7) After two years, Biwei's business is in rapid expansion. He wants to raise $IM new capital. He can finance via taking a loan or issuing stocks. The market interest rate for a loan is 5%. For an angel investor, injecting SIM into Biwei's business will dilute 50% of Biwei's ownership. What is the capital cost of Biwei's business expansion? 

Answer rating: 100% (QA)

Answer 1 The total cost function is CQ 1000 4Q The average cost function is AQ CQQ The marginal cost ... View the full answer