7. (10 points) Assume the following cost data are for a perfectly competitive fi

Question

7. (10 points) Assume the following cost data are for a perfectly competitive firm. Average Avege Average Total Fixed VariableTotal Cost roduct Cost CostCost FixedVariable TotalMarginal Cost Cost Cost 0 $100 S0 S100 1$100 $44 $144 $100.00 S43.74 $143.74 S43.74 2 $100 $84 S184 S50.00 S41.92 91.92 $40.10 3 $100 $120 $220 S33.33 S40.10 $73.43 S36.45 4 $100 153 $253 S25.00 S38.27 $63.27S32.81 5 $100 $190 $290 S20.00 S37.91 $57.9S36.45 6 $100 $230 $330 S16.67 S38.27 $54.94$40.10 7 $100 $273 $373 S14.29 S39.05 S53.34S43.74 8 $100 $324 $424 S12.50 S40.55 $53.05 S51.03 9 $100 $383 $483 S1 S42.53 S53.64S58.32 10$100 $448 $548 S10.00 S44.83 $54.83S65.61 a. At a product price of $35, will this firm produce in the short run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? What economic profit or loss will the firm realize? b. Answer the same questions assuming product price is $45 c. Answer the same questions assuming product price is $55

Explanation / Answer

a. Q = 4 where MR = MC

P < AVC, so it is not preferable to produce as the firm is not even recovering his variable cost.

Profit = TR - TC = 35*4- 253

Profit = -113

b. Q = 7

P > AVC,  so it is preferable to produce as the firm is not even recovering his variable cost.

Profi t= 45*7 - 373 = -58

c. Q = 8

P > AVC,  so it is preferable to produce as the firm is recovering his variable cost and making profit.

Profit = 55*8 - 424 = 16

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.