Problem: Cost functions.
Consider a firm with average cost function AC(y) = 1+y+1/y.
a. What is the firm's total cost function?
b. What is the firm's variable cost function? What is the firm's average variable cost (AVC) function?
c. What is the firm's marginal cost function? Draw it on the graph.
d. On the same graph draw the AVC function. What is the firm's short-run supply curve? That is for every price p, how much will the firm produce in the short-run?Write the corresponding equation and draw the curve on the graph.
e. Draw the AC function on the same graph. What is the firm's long-run supply curve? That is for every price p, how much will the firm produce in the long-run? Which curves are relevant now?