the average total cost curve


All case and questions as attached.

Questions 1

Task 1: Draw the marginal cost curve and the average total cost curve of a wet milling ethanol plant. Assume that the overhead cost is not recoverable if the plant shuts down temporarily.

Task 2: Draw the marginal cost curve and the average total cost curve of a dry milling ethanol plant.

Task 3: ADM’s Peoria plant is a wet-milling plant. Suppose the price of ethanol were $1.02 per gallon. Would ADM wish to temporarily suspend operations (shut down) at the Peoria plant? What is the minimum ethanol price at which operating the Peoria plant is optimal for ADM?

Task 4: Draw the current short-run industry supply curve for ethanol.

Task 5: Verify that the current equilibrium price of $1.53 is consistent with the shortrun supply curve you derived above, combined with the demand function !=46.1- 20!, where Q is billions of gallons per year. Task 6: Suppose the demand for ethanol changes to !=23.05-10!. What do you predict will be the new price in the short run? How much ethanol will be produced in the new short-run equilibrium? How much will be produced by dry-milling plants? Wet-milling plants?

Questions 2

a. Should AbbVie buy the drug for $2 million?

b. What is the most AbbVie should be willing to pay for the Illinois Tech researcher’s drug?

c. How would your answer change if the Illinois Tech biologist had developed her drug two years ago, before AbbVie started its own R&D project?

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