Economics 2. Suppose a firm has fixed costs of $200 per

Economics 2. Suppose a firm has fixed costs of $200 per month, and marginal costs represented by the equation MC =2Q, where Q is output per month (i.e. marginal cost is a positively sloped straight line). The price of the good is $40. (a) Plot (perhaps using excel) the average total cost (ATC) and marginal cost (MC) curves). Indicate on your diagram the following (and state clearly what these quantities are): The breakeven point (the smallest output level that allows the firm to cover its costs). The output level that minimizes the ATC. The profit-maximizing output level. The area that corresponds to maximized profits. (b) Suppose that a supplier offers to license a technology that reduces this firm’s marginal cost by 9% (from 2Q to 1.82Q). The cost of the license is $500 per year. Should the firm buy the license? 3. Suppose now there are 100 firms in the industry, each with the same costs as in part (a) of question 2. (a) If the market quantity demanded is 2,500, what is the market price? (Hint: every firm will produce an identical amount because they have the same marginal cost curve). How much

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