Suppose you produce fingernail clippers in a perfectly competitive market. The price of your product is $4 and you have fixed costs of $2. Suppose that your variable costs take the form of a function and the function is: .05Q^2 where Q is the quantity produced. Using a spreadsheet, calculate the profit maximizing quantity and the profit earned at the profit maximizing level. Using the spreadsheet software, draw the graph, shade the area of profit then answer the following questions: What happens if fixed costs increase from $2 to $3? Does the profit maximizing output change? Explain the shape of the ATC curve.
Here are my answers.