Suppose Gail\'s bakery has a short-run, Gail\'s bakery is a price taker and she

Question

Suppose Gail's bakery has a short-run, Gail's bakery is a price taker and she profits. 15)su e of output, labor the firm will hire when it minimizes the cost to producding 50 units of Labor er and she chooses quantity of output, a, to maximize run, cost function given by: TC-18 +3q+0.5q b. Suppose the short-run short run price that would cause Galil's profit to equal s0. produce. $9.00 C. Suppose the short-run was n price was $12.00. Determine the quantity that Gall would run price was $2.00. Determine the quantity that Gail would produce. $1200 9 units. 0 units.

Explanation / Answer

a) Profit = 0 when P = ATC = MC

ATC = TC/q = 18/q + 3 + 0.5q

MC = d(TC)/dq = 3 + q

0.5q = 18/q

q = 6 , P = $9

b)

P = $12

Profit would be maximized where P = MC

12 = 3 + q

q = 9 units

c)

P = $2

VC = 3q + 0.5q2

AVC = VC/q = 3 + 0.5q

min AVC = 3

P < min AVC , therefore, the firm should shutdown.

Output = 0 units

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