$$$7

$$$7

Walter’s sunk fixed costs.
$50 – The amount used to rent the storefront.
Walter’s non-sunk fixed costs.

$5 – Refrigeration cost.

Sunk fixed costs are the fixed costs that cannot be recovered once incurred by a business.

To maximize profits, MC = MR
TC = TFC + TVC
TC = 55 + Q² – 1/3Q
MC = 2Q – 1/3

TR = P*Q

TR = 20Q

MR = 20

Therefore 20 = 2Q – 1/3

2Q = 20.33

Q = 10.16 units

If the market price is $5.

5 = 2Q – 1/3

Q = 2.67 units

In the short run, a firm should continue to operate as long as the price exceeds the average variable cost.

STC (Q) = Q² + 4Q + 8

For the firm to continue producing, the price must exceed the short run average total cost if all the fixed costs are non-sunk.

ASTC = (Q² + 4Q + 8)/Q

ASTC = Q + 4 + 8/Q

∆ASTQ/∆Q = 1 – 8Q^-2= 0

1 = 8/ Q²

Q² = 8

Q =2.8 units (to one decimal place)

ASTC = 2.8+4+8/2.8

ASTC = $9.7 (to one decimal place)

P = $ 9.7

Firms produce where MC(Q) = P

The short run supply curve is the formula for the MC function.

Supply curve = 2Q + 4

Market supply = 40(2Q + 4)= 80Q + 160

Q^S = 80Q + 160

At equilibrium,

Q^S= Q^D= 80Q + 160 = 450 – 3P

80 (450 – 3P) + 160 = 450- 3P

36000 – 240P + 160 = 450- 3P

36000 + 160 – 450 = -3P + 240P

35710 = 237P

P = $150.7

TC = 1/4Q²– Q

P = $16

Production = 10 units

TC = (¼*100)-10= 15

TR = 16*10 units

TR = 160

Profit/benefit = 160-15 = 145

This is a competitive market with 20 firms and therefore in the short run because they are making supernormal profits. The firms make losses in the long run in a competitive market.

TC = 1/3Q³ – Q² +3Q

P = 12

Production = 1 unit

TC = (1/3)*1²-1*1 +3*1³

TC = 2.33

TR = P*Q=12*1=12

Profit/benefit = 12-2.33=$9.67

The firm is a monopoly and is able to make the supernormal profits in the long run. This firm is in the long run.

TC = 3Q³ – 2Q² + Q

P = 10

Production = 2 units

TC = 24 -8 + 2

TC = 16

TR = 10*2 = 20

Profit/benefit = 20- 16 = $4

With a hundred firms, making this normal profits means that the firms are towards the end of the short run.

a) At equilibrium, L^D = L^S= 100 – 2W = 20 + 2W

80 = 4W

W = $20 at equilibrium

When W = $25

L^D = 100 – 50 = 50

L^S= 20 + 50 = 70

Therefore, increase in minimum wage reduces demand for labor while increasing labor supply. This condition will cause more unemployment.

Kindly note that the graph is not drawn to scale. Thank you.

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