MC ATC, AVC 0 10 20 30450 Output (units per day) The above figure shows Antigone
ID: 1167053 • Letter: M
Question
MC ATC, AVC 0 10 20 30450 Output (units per day) The above figure shows Antigone's wheat farm which is a perfectly competitive firm. Suppose the price of a pound of wheat is $7. Answer and explain your answers to the following questions. a) How many pounds of wheat will Antigone's potatoes produce? b) Find Antigone's wheat average total, average variable, and marginal costs? c) Find Antigone's wheat total, total variable, and total fixed costs? d) Find Antigone's wheat total revenue and economic profit? e) What will happen in this market in the long run?Explanation / Answer
1.
A.
Profit maximizing output in a perfectly competitive market is produced, when P =MR=MC
On the basis of P = MR = MC = 7,
The profit maximizing output = 40 units
B.
At the output level of 40 units,
Average total cost = $4
Average variable cost = $3
Marginal cost = $7
C.
At the output level of 40 units,
Total cost = 4*40 = $160
Total variable cost = 3*40 = $120
Total fixed cost = 160-120 = $40
D.
Total revenue = Price * output = 7*40 = $280
Economic profit = total revenue – total cost = 280-160
Economic profit = $120
E.
Since the firm is earning positive economic profit and there is a free entry and exit to the market, then more firms will join the market to cater the demand in the long run. It will drive down the economic profit for the firms to be zero in the long run equilibrium.
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