Discussion:
Ron's Window Washing Service is a small business that operates in the perfectly competitive residential window washing industry in Evanston, Illinois. The short-run total cost of production is STC(Q) = 40+ 10Q + 0.1Q2, where Q is the number of windows washed per day. The corresponding short-run marginal cost function is SMC(Q) = 10 + 0.2Q. The prevailing market price is $20 per window.
a) How many windows should Ron wash to maximize profit?
b) What is Ron's maximum daily profit?
c) Graph SMC, SAC, and the profit-maximizing quantity. On this graph, indicate the maximum daily profit.
d) What is Ron's short-run supply curve, assuming that all of the $40 per day fixed costs are sunk?
e) What is Ron's short-run supply curve, assuming that if he produces zero output, he can rent or sell his fixed assets and therefore avoid all his fixed costs?