A firm’s minimum AC is $10, its minimum AVC $7. Show this firm’s short-run supply curve, explaining how you obtained it.
What will be an ideal response?
Draw a U-shaped AC and AVC, with Q at minimum AVC at a smaller level than for AC (Figure 10-12). MC passes through each of these minimum points. The firm’s short-run supply is MC above minimum AVC. Below minimum AVC, the firm produces zero. Only when P exceeds minimum AVC will the firm find it worthwhile to operate; below minimum AVC the firm is better off shutting down and losing its fixed cost.
Figure 10-12
Figure 10-12
Economics
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If we observe that when the price of chocolate candy bars increases by 10%, quantity demanded decreases total by 10%, then the demand for chocolate candy bars is unit price elastic
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Economics