Problems 1. Table shows cost data for a firm that is slling in a purely competit

Question

Problems 1. Table shows cost data for a firm that is slling in a purely competitive market.(8 pts) Output AFC AVC ATC MC 1 $300 $100 $400 $100 2 150 75 225 50 3 100 70 170 60 4 75 73 148 80 5 60 80 140 110 6 50 90 140 140 7 43 103 146 180 8 38 119 156 230 33 138 171 290 10 30 160 190 360 9 Refer to the above table. If the market price for the firm's product is $80, the firm will: A. Produce 4 units B. Produce 5 units C. Produce 6 units D. Shut down Refer to the above table. If the market price for the firm's product is $180, the competitive firm will produce: A. 5 units and earn economic profits of $100 B. 6 units and earn economic profits of $120 C. 7 units and earn economic profits of $238 D. 8 units and earn economic profits of $278

Explanation / Answer

1. Ans: Produce 4 units

Explanation:

The equilibrium condition for a firm in a competitive market is: P = MC. From the table it is seen that when the firm produces 4 units of output, the P = MC = $80.

2. Ans: 7 units and earn economic profit of $238

Explanation:

The equilibrium condition for a firm in a competitive market is: P = MC. From the table it is seen that when the firm produces 7 units of output, the P = MC = $180.

Economic profit = TR - TC

                         = ($180 * 7) - ($146 * 7)

                        = $238

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