Problem 1) The average variable cost is AVC = 3500 - 6Q + 0.005Q2
a. If the industry is competitive, estimate the shut down price.
b. If the market price is below the shut down price, regardless of fixed cost, explain why the firm should shut down.
c. Using this information, draw the firm's short run supply function.
Problem 2) The price elasticity of demand for a textbook sold in the United States is estimated to be -2.0, whereas the price elasticity of demand for books sold in overseas markets is -3.0. The U.S. market requires hardcover books with a marginal cost of $24.00 while the overseas market is normally served with soft-cover texts having a marginal cost of only $18.00. Calculate the profit maximizing price in each market. How might these prices become equal?