Problem
A price-taking barber shop has a fixed cost of 100 and a variable cost equal to 2q + q2, where q is the number of haircuts. Its marginal cost of production is equal to 2 + 2q.
A. What is the firm's average variable cost function?
B. What is the firm's shutdown price?
C. What is the firm's average total cost function?
D. For what value of q does the ATC curve reach a minimum?
E. What is the value of ATC at its minimum? (In other words, what is the lowest possible per-unit production cost?)
F. Suppose the current market price for haircuts is $12 and the shop is therefore making a loss. Should it (temporarily) shut down the business and wait for higher prices?