Consider the following cost relationships for a single-product firm:
C(q)= 50 + 0.5q for q<7
C(q)= 7q for q> 7
a. Derive average and marginal cost for all integer outputs less than or equal to 7.
b. What are average and marginal cost for all outputs above 7?
c. What can you conclude on the basis of the calculations above?
d. Is there a minimum efficient scale of plant implied by these cost relationships? If so, what is it?
e. Let P be industry price and Q be total industry output. If the industry demand curve is P = 84 - 0.5Q use the data from your above calculations to determine what is the maximum number of efficient-sized firms that the industry can sustain.
f. How would your answer to e. change if industry demand were instead P = 14 - 0.5Q? Explain.