You are a perfectly competitive firm and P = $5 . Your cost function is: C(Y )= Y2 + Y + 4
a) What are your firm’s variable costs? Fixed costs?
b) Write down your firm’s profit function.
c) Write down the firms first order condition for profit maximization and solve for Y * .
d) Show that at this production point, profit is maximized rather than minimized (sufficient condition is met.)
e) Solve for the profit earned by the firm.
f) Should you produce Y * , or should you shut down and produce nothing? Explain why.