The table below presents information on the market for olive oil. .The demand fo

Question

The table below presents information on the market for olive oil. .The demand for olive oil is given in columns (1) and (2) of the table. Assume the Long-Run Average Total Cost of producing a gallon of olive oil is constant at $20 per gallon. Assume the Long Run Marginal Cost of producing a gallon of olive oil is constant at $20 per gallon. 6 MMa Cost Quantity Total Cost Margin ce per Gallon Profit per year (millions of OM OM OM 8.00M $40 $60 S8 6.16M 4.50M (A) Complete columns (3) (7) in the table above for Total Revenue, Marginal Revenue Total Cost, Marginal Cost, and Economic Profit. (B) Producers of olive oil experience (complete the correct answer) 1. Decreasing returns to scale/diseconomies of scale because 2. Increasing returns to scale/economies of scale because 3. Constant returns to scale because

Explanation / Answer

P Demand TR TC MR MC Economic profit ATC 20 10 200 200 0 20 30 9 270 600 70 400 -330 66.66667 40 8 320 800 50 200 -480 100 50 7 350 1000 30 200 -650 142.8571 60 6.16 369.6 1200 19.6 200 -830.4 194.8052 70 4.5 315 1400 -54.6 200 -1085 311.1111 80 3.5 280 1600 -35 200 -1320 457.1429 B) INCREASING returns to scale because as the output Is increased the average total cost decreasing. C) D) The equilibriu is defined by the condition: P = MC. Since MC is above Demand curve at all points The market equilibrium quantity is zero and P = 200 E) economic profit = TR-TC 0 f) Consumer surplus =0

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