d) What is level of output corresponding to the minimum level of Ron's average variable cost curve? [Hint: At the minimum level of the average variable cost curve, it crosses with the short-run marginal cost curve. Set AVC (q) = SMC(q) and solve for q] e) Find Ron's shutdown price. [Hint: The shutdown price when all fixed costs are sunk is given by the minimum level of the average variable cost curve. Plug the value of q you found in part (d) into the AVC(q). You have found the shutdown price for Ron] f) Find Ron's short-run supply curve. [Hint: Use the shutdown down price found in part (e). Ron's supplies the profit-maximizing quantity when price is equal or higher than the shutdown price, and zero otherwise]
d) What is level of output corresponding to the minimum level of Ron's average variable cost curve? [Hint: At the minimum level of the average variable cost curve, it crosses with the short-run marginal cost curve. Set AVC (q) = SMC(q) and solve for q] e) Find Ron's shutdown price. [Hint: The shutdown price when all fixed costs are sunk is given by the minimum level of the average variable cost curve. Plug the value of q you found in part (d) into the AVC(q). You have found the shutdown price for Ron] f) Find Ron's short-run supply curve. [Hint: Use the shutdown down price found in part (e). Ron's supplies the profit-maximizing quantity when price is equal or higher than the shutdown price, and zero otherwise]
Chapter22: Supply: The Costs Of Doing Business
Section: Chapter Questions
Problem 14E
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Show full answers and steps to part d) e) & f)
![Exercise 5
Ron's Window Washing Service is a small business that operates in the
perfectly competitive residential window washing industry in Evanston, Illinois. The short-run
total cost curve is STC (q) = 40 + 10q +0.1q2, where q is the number of windows washed per
day. All fixed costs are sunk (unrecoverable).
a) Find Ron's short-run marginal cost curve, SMC(q), and average variable cost curve,
AVC(q).
b) How many units of output Ron's should produce each month to maximize profits if the
market price is p = $20? [Hint: Use the profit-maximizing condition]
c) What is Ron's maximum monthly profit? [Hint: Use the profit function]
d) What is level of output corresponding to the minimum level of Ron's average variable cost
curve? [Hint: At the minimum level of the average variable cost curve, it crosses with the
short-run marginal cost curve. Set AVC (q) = SMC(q) and solve for q]
e) Find Ron's shutdown price. [Hint: The shutdown price when all fixed costs are sunk is
given by the minimum level of the average variable cost curve. Plug the value of q you
found in part (d) into the AVC(q). You have found the shutdown price for Ron]
f) Find Ron's short-run supply curve. [Hint: Use the shutdown down price found in part (e).
Ron's supplies the profit-maximizing quantity when price is equal or higher than the
shutdown price, and zero otherwise]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa3574180-5be7-46af-9f18-c1fbb9ec682c%2Fce7f12fd-ab72-42c9-8eab-07dc63e11b7d%2Fxvbcv8d_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 5
Ron's Window Washing Service is a small business that operates in the
perfectly competitive residential window washing industry in Evanston, Illinois. The short-run
total cost curve is STC (q) = 40 + 10q +0.1q2, where q is the number of windows washed per
day. All fixed costs are sunk (unrecoverable).
a) Find Ron's short-run marginal cost curve, SMC(q), and average variable cost curve,
AVC(q).
b) How many units of output Ron's should produce each month to maximize profits if the
market price is p = $20? [Hint: Use the profit-maximizing condition]
c) What is Ron's maximum monthly profit? [Hint: Use the profit function]
d) What is level of output corresponding to the minimum level of Ron's average variable cost
curve? [Hint: At the minimum level of the average variable cost curve, it crosses with the
short-run marginal cost curve. Set AVC (q) = SMC(q) and solve for q]
e) Find Ron's shutdown price. [Hint: The shutdown price when all fixed costs are sunk is
given by the minimum level of the average variable cost curve. Plug the value of q you
found in part (d) into the AVC(q). You have found the shutdown price for Ron]
f) Find Ron's short-run supply curve. [Hint: Use the shutdown down price found in part (e).
Ron's supplies the profit-maximizing quantity when price is equal or higher than the
shutdown price, and zero otherwise]
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