Equilibrium price and output in short run and long run

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A firm has short-run total costs given by C(q)=100+2q+q2 (hence, MC=2+2q).

a) Find the average total cost and average variable cost as a function of the level of output.

b) If P=25, how much will the firm produce in the short run? What if P=20? [Hint: remember the minimum conditions for a firm to stay open in the short-run]

c) Assuming the firm has the same cost curves in the long-run for q>0 and C (0) =0, how much will it produce in the long-run? [Hint: if you identify the price for which the firm will remain open in the long-run, you can obtain the quantity the firm will produce if it remains open]

d) Given your answer in c), do you think a price of $25 will be likely in the long-run? Why? Explain clearly.

e) The government imposes a fixed tax of $20 on the profits of the firm. Would this tax affect the decisions of the firm in the short-run and long-run? Explain clearly.

Reference no: EM1311177

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