2.5 — Short Run Profit Maximization — Practice Problems

A firm has short-run costs given by: \[\begin{align*} C(q)&=q^2+1\\ MC(q)&=2q\\ \end{align*}\]

1.

Write an equation for fixed costs, \(f\).

2.

Write an equation for variable costs, \(VC(q)\).

3.

Write an equation for average fixed costs, \(AFC(q)\).

4.

Write an equation for average variable costs, \(AVC(q)\).

5.

Write an equation for average (total) costs, \(AC(q)\).

6.

Suppose the firm is in a competitive market, and the current market price is $4, how many units of output maximize profits?

7.

How much profit will this firm earn?

8.

At what market price would the firm break even \((\pi=0)\)?

9.

Below what market price would the firm shut down in the short run if it were earning losses?

10.

Write out the firm’s short run supply function.