Consider a monopolistically competitive market with N firms. Each firm\'s busine

Question

Consider a monopolistically competitive market with N firms. Each firm's business opportunities are described by the following equations: Demand: Q^D = (100 / N-P Marginal Revenue: MR (100/N)-20 Total Cost: TC-50 + Q-2 Marginal Cost: MC-20 Answer the questions that follow. More detailed background about these questions can be found in the non-online version of this problem set, which is posted on MindTap just below the online version. We strongly suggest you access that document before answering these questions. (a) Provide an expression for this firm's Average Variable Cost (AVC). Is AVC U-shaped here? Why or why not? Explain with reference both to marginal cost and to marginal product. 14.2. PS 7-Part II-A-14.2 The AVC curve U-shaped here, because MC onlyas Q increases, implying that the marginal product of labor only , as L increases. O A. Is; increases; decreases O B. Is not; increases; increases O C. Is not; increases; decreases O D. Is; decreases; increases

Explanation / Answer

The answer is C-) Is not ;increases ; decreases .

because, as we can se, out avergae variable cost function is equal to = Q2 / Q = Q

so, AVC is vertical here. when Q = 5, AVC =5, and so on because, AVC=Q

but MC = 2Q, therefore it is an increase function . MC is only increasing, and when MC is increasing marginal product of labor decreases.

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