4. Assume that the cost data in the table below are for a purely competitive pro

Question

4. Assume that the cost data in the table below are for a purely competitive producer: Lo3 a. At a product price of $56, 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 per unit of output? Average Average Average Fixed Total Product Cost Variable TotalMarginal Cost Cost Cost 0 $60.00 $45.00 $105.00 72.50 60.00 52.50 49.00 47.50 47.14 48.13 50.00 52.50 40 35 30 35 40 45 2 30.00 42.50 40.00 37.50 37.00 10.00 37.50 38.57 40.63 43.33 46.50 20.00 15.00 12.00 4 6 8.57 7.50 6.67 6.00 8 65 75 10

Explanation / Answer

4.

A.

Firm will produce in the short run as long as price is above the average variable cost. In the given scenario, the highest level of average variable cost is $46.5 and it is much below than the price level of $56 per unit. So, firm will produce in the short run.

Profit maximizing output will be 8 units, because up to this level, price will be more than the marginal cost. With 9th unit of output, MC will exceed the price and profit level will come down. So, profit maximizing output level will be 8 units.

Economic profit per unit = price per unit – average total cost per unit

Economic profit per unit = 56-48.13 = $7.87 per unit

Total economic profit = 8*(56-48.13) = $62.96

Pl. repost other unanswered questions for their proper answers!

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

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