Consider two firms in a perfectly competitive industry. They have the same MC curves and differ only in having higher and lower fixed costs. Suppose the ATC curves are of the form: 400/Q+10+ (1/4)Q and 225/Q+10+ (1/4)Q. The MC for each is a straight line: MC = 10+ (1/2)Q.
(a) Each ATC curve is U shaped and has a minimum at the quantities 40 and 30 respectively. Draw two ATC curve on the same diagram as the MC curve that reflect this information.
(b) Compute the break-even price for each firm.
(c) Explain why both of these firms cannot continue to produce in the long run in a perfectly competitive market.
(d) Could you derive an expression for the total variable cost curve for these firms, given the total cost curves are: 400+10Q+ (1/4)Q2 , and 225+10Q+ (1/4)Q2?