Alocal pizza shop has hired a consultant to it compete with national chains in the area. because most business is handled by these national chains, the local shop operates as a price taker. using historical data on costs, the consultant finds that short-run total costs each day are given by:
stc = 10+q+0.1q²
a) find the short-run marginal cost (smc) function associated with this shop.
b)what is this price-taking firm's short-run supply curve?
c)does this firm have a shutdown price? that is, what is the lowest price at which the firm will produce any pizza?
d)find the short-run average cost (sac) for this shop. find the q where the sac reaches minimum point. how would you verify this?
e) the consultant also claims that any price for pizza of less than $3 will cause the shop to lose money. is this consultant correct? explain.
f) currently the price of pizza is low ($2) because one major chain is having a sale. because this price does not cover average costs, the consultant recommends that this shop cease operations until the sale is over. would you agree with this recommendation? explain.
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