A firm’s short run total cost STC=4+q+q2. It is a price taker.
a. What is its short run average cost function SAC? Marginal cost function SMC? Draw them in one graph.
b. How many should it produce if P=6? What is the profit?
c. How many should it produce if P=5? What is the profit?
d. How many should it produce if P=3? What is the profit?
e. What is its short run total variable cost function SVC? Short run average variable cost function AVC? Could you conclude that average variable cost is always less than marginal cost? What is the minimum price that the firm is short run profitable (find the answer from part b-d)? Does the firm has any shutdown price if P>1?