Costs. The cost function of a firm is TC = 18 + 0.5Q2 , and the corresponding marginal cost function is MC = Q .
a) Obtain the average variable cost function (AVC) and the average total cost function (ATC) algebraically.
b) Find (algebraically) the points where the MC function intercepts the AVC and the ATC functions. (Hint: at one interception point MC = AVC and at the other MC = ATC)
c) If the price of the good produced by the firm is $3, and it is probably going to remain at the same level for several years: i) should the firm stay in the business until the end of the current period? and
ii) should the firm stay in the business after the current period has ended? Explain.