25. Suppose that Andy sells basketballs in the perfectly competitive basketball

Question

25. Suppose that Andy sells basketballs in the perfectly competitive basketball market. His output per day and his costs are as follows Output Per Day Tota Variable Average Cost $10.00 15.00 17.50 22.50 30.00 40.00 52.50 67.50 85.00 105.00 Average Variable Cost Marginal Cost CostTotal Cost SO $15.00 8.75 7.50 7.50 8.00 8.75 9.64 10.63 11.67 $5.00 3.75 4.17 5.00 6.00 7.08 8.21 9.38 10.56 $5.00 2.50 5.00 7.50 10.00 12.50 15.00 17.50 20.00 1 2 7.50 12.50 20.00 30.00 42.50 57.50 75.00 95.00 4 5 a. Suppose the equilibrium price of basketballs is S2.50. In the short run, how many basketballs will Andy produce? Answer (Enter a whole number.) per day. (Round your answer to the nearest b. How much profit (or loss) will he make? Answer: $ penny, and express a loss as a negative number.)

Explanation / Answer

Answer.)

A.) Andy will produce 2 basketballs per day.

Since its a competitive market, therefore equilibrium output will be achieved when Price = marginal cost.

B.) - $12.5 per day

Note if equilibrium output is 2 basketballs per day then

price = $2.50 and ATC = $8.75

profit = Total revenue - total cost

= Price x quantity - ATC x Quantity

= $2.5(2) - $8.75(2)

= 5 - 17.5

= -$12.5 per day

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