. Deriving the Short-Run Supply Curve for a Price-Taking Firm
Suppose that a firm has a short-run total cost curve given by STC = 100+ 20Q + Q2, where the total fixed cost is 100 and the total variable cost is 20Q+ Q2. The corresponding short-run marginal cost curve is SMC= 20 + 2Q. All of the fixed cost is sunk.
(a) What is the equation for average variable cost (AVC)?
(b) What is the minimum level of average variable cost?
(c) What is the firms short-run supply curve?
Answer : a) AVC = TVC/Q = 20 + Q b) As, AVC = 20 + Q So, Its minimum level is where Q = 0 i.e Minimum AVC = 20 c) Short…
n supply curve is same as the MC curve Hence,Short run supply curve : P =20 + 2 Q.