In a certain industry, the supply curve of any firm is S_i(p)= p/2.If a firm produces 5 units of output, what are its total variable costs?

Question

Quizplus · Accepted Answer

The supply curve is given as S(p) = p/2, which implies that the price (p) is twice the quantity (q). If a firm produces 5 units, then p = 2*5 = $10. The total revenue (TR) for producing 5 units is 5*$10 = $50. Since the supply curve represents marginal cost (MC), and MC is constant at $10, the total variable cost (TVC) for producing 5 units is 5*$10 = $50. However, the question asks for total variable costs, and the calculation directly leads to a misunderstanding in the explanation. Correcting this, the supply curve equation doesn't directly give us total variable costs but rather the price at which the goods are supplied. The correct approach to find the total variable costs from the given supply curve information is not directly provided, leading to confusion in the explanation. Given the supply curve is S(p) = p/2, and without a direct link between this supply curve and total variable costs, the correct answer should be based on the understanding that total variable costs are typically derived from the cost function, not directly from the supply curve. The mistake was in interpreting the supply curve as indicating total revenue and then equating that to total variable costs without considering the profit equation or a cost function. Without additional information on costs or the assumption that price equals marginal cost, we cannot accurately calculate total variable costs from the given supply curve equation alone. Therefore, the explanation mistakenly equated total revenue with total variable costs and misinterpreted the supply curve's role.

In a Certain Industry, the Supply Curve of Any Firm