Using the table below, Suppose a firm is operating in a perfectly competitive ma
ID: 1166531 • Letter: U
Question
Using the table below, Suppose a firm is operating in a perfectly competitive market that is in equilibrium and answer for the following questions:
Output
Fixed Cost
Tot. Variable Cost
TC
Avg. Fixed Cost
Avg. Variable Cost
Avg. Total Cost
Marginal Cost
0
100
0
100
1
100
1
101
100
1
101
2
2
100
4
104
50
2
52
4
3
100
9
109
33.33333
3
36.33333
6
4
100
16
116
25
4
29
8
5
100
25
125
20
5
25
10
6
100
36
136
16.66667
6
22.66667
12
7
100
49
149
14.28571
7
21.28571
14
8
100
64
164
12.5
8
20.5
16
9
100
81
181
11.11111
9
20.11111
18
10
100
100
200
10
10
20
20
11
100
121
221
9.090909
11
20.09091
22
12
100
144
244
8.333333
12
20.33333
24
13
100
169
269
7.692308
13
20.69231
26
14
100
196
296
7.142857
14
21.14286
28
15
100
225
325
6.666667
15
21.66667
30
16
100
256
356
6.25
16
22.25
32
17
100
289
389
5.882353
17
22.88235
34
18
100
324
424
5.555556
18
23.55556
36
19
100
361
461
5.263158
19
24.26316
38
20
100
400
500
5
20
25
40
a.) Given that the market is in equilibrium, what do we expect the market price to be?
b.) Using your answer from above (part a) , find the average total cost, average fixed cost, and the average variable cost.
c.) Suppose now consumers get richer (assume the good is a normal good), what do we expect to happen to the market price? Will this lead to an increase or decrease in the amount each firm in the market produces?
d.) Assuming the price increases to 30, how much should a profit maximizing firm produce?
e.) Given that firms are now earning an economic profit what do we expect to happen to the number of firms in the industry over the long run? How will this shift the market supply curve?
f.) Eventually, firms will no longer enter the market. At what price will firms no longer enter the industry?
Output
Fixed Cost
Tot. Variable Cost
TC
Avg. Fixed Cost
Avg. Variable Cost
Avg. Total Cost
Marginal Cost
0
100
0
100
1
100
1
101
100
1
101
2
2
100
4
104
50
2
52
4
3
100
9
109
33.33333
3
36.33333
6
4
100
16
116
25
4
29
8
5
100
25
125
20
5
25
10
6
100
36
136
16.66667
6
22.66667
12
7
100
49
149
14.28571
7
21.28571
14
8
100
64
164
12.5
8
20.5
16
9
100
81
181
11.11111
9
20.11111
18
10
100
100
200
10
10
20
20
11
100
121
221
9.090909
11
20.09091
22
12
100
144
244
8.333333
12
20.33333
24
13
100
169
269
7.692308
13
20.69231
26
14
100
196
296
7.142857
14
21.14286
28
15
100
225
325
6.666667
15
21.66667
30
16
100
256
356
6.25
16
22.25
32
17
100
289
389
5.882353
17
22.88235
34
18
100
324
424
5.555556
18
23.55556
36
19
100
361
461
5.263158
19
24.26316
38
20
100
400
500
5
20
25
40
Explanation / Answer
Output Fixed costs $ Total Variable Costs $ Total Costs $ Average Fixed Costs $ Average Variable Costs $ Average Total Costs $ Marginal Costs $ 0 100 0 100 1 100 1 101 100 1 101 1 2 100 4 104 50 2 52 3 3 100 9 109 33.33333 3 36.33333 5 4 100 16 116 25 4 29 7 5 100 25 125 20 5 25 9 6 100 36 136 16.66667 6 22.66667 11 7 100 49 149 14.28571 7 21.28571 13 8 100 64 164 12.5 8 20.5 15 9 100 81 181 11.11111 9 20.11111 17 10 100 100 200 10 10 20 19 11 100 121 221 9.090909 11 20.09091 21 12 100 144 244 8.333333 12 20.33333 23 13 100 169 269 7.692308 13 20.69231 25 14 100 196 296 7.142857 14 21.14286 27 15 100 225 325 6.666667 15 21.66667 29 16 100 256 356 6.25 16 22.25 31 17 100 289 389 5.882353 17 22.88235 33 18 100 324 424 5.555556 18 23.55556 35 19 100 361 461 5.263158 19 24.26316 37 20 100 400 500 5 20 25 39 Total cost = Fixed Cost + Variable costs Fixed cost is the same for all quantity produced. Variable costs varys with output. Average Fixed cost= Total Fixed Cost/Quanity Average variable cost= Total variable Cost/Quanity Average total cost= Total Cost/Quanity Marginal cost is additional cost due to the production of one more unit. a) Profit maximization for a perfectly competitive industry is when MR=MC. The market price will be equal to MC at varying levels of output. c) A normal good means that the demand for it will increase when income increases. Since the demand increases and supply remains the same, the demand curve shifts outward. The equilibrium price and quantity will increase. d) If the market price is $30, the firm should produce 15 units because MC at that level is 29 which is below MR. e) If there is economic profit ( P is greater than ATC), firms will enter the industry. The supply curve will shift right and price falls. f) In the long run equilibrium, P=AR=ATC. If P isRelated Questions
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