Can someone help me with this question with explanations? Suppose there are two

Question

Can someone help me with this question with explanations?

Suppose there are two firms in the market for dog food (y), Butter's Best and Monty's Meats, with the following cost functions: Firm Cost Function Butter's Best Monty's Meats (y+ 2)2 y2 + 6y +1 1. Find the fixed costs, average fixed costs, variable costs, average variable costs, and marginal costs for each firm. 2. Find the price at which each firm will shut down in the short run as a function of y. 3. Find the supply function for each firm 4. Find the price at which each firm will enter the market as a function of y 5. Suppose many firms with these cost functions may enter the dog food market, explain why long run production for each firm will occur where MC - AC, and long run profits will equal zero for each firm 6. Find the prices at which both firms produce zero dog food, the prices at which only one firm produces a positive amount of dog food, and the prices at which both firms produce a positive amount of dog food. 7. Bonus: Write a function describing the total quantitv supplied bv both firms in this dog food market as a function of the market price, and graph this function.

Explanation / Answer

Ans 1)

FC AFC VC AVC MC

Butter Best 2 2/y 0.5y^2+2y 0.5y+2 y+2

Monty Meats 1 1/y y^2+6y y+6 2y+6

Ans 2)

When Revenue<Cost

P*y<0.5(y+2)^2

P*y<0.5y^2+2y+2

P<0.5y+2+2/y for Butterbest where Firm will shutdown

Similarly

P*y<y^2+6y+1

P<y+6+1/y<AC Monty Meats where Firm will shutdown

Ans C)

Supply Curve in this case is as good as Marginal Cost Curve

For Butter Best

Supply Curve=y+2

For Monty Meat

Supply curve=2y+6

Ans 5)

In the long run many firms enter that brings perfect competition into the picture for long run. Firms only earn normal profit and try to remain above the shut down price.

That is P>AC but for Perfect competition Profit maximising condition is P=MC

P>AC would be adjusted in the long run for P=AC=MC hence Proved (from ans 2)

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.