TCO C) Answer the next questions (Parts A and B) on the basis of the following c
ID: 1173323 • Letter: T
Question
TCO C) Answer the next questions (Parts A and B) on the basis of the following cost data for a firm operating in pure competition:
OUTPUT ------ TFC -------- TVC
0 $50.00 0.00
1 50.00 90.00
2 50.00 160.00
3 50.00 200.00
4 50.00 260.00
5 50.00 340.00
6 50.00 450.00
(a.) (15 points) Refer to the above data. If the product price is $55, at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.
(b.) (15 points) Refer to the above data. If the product price is $70, at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations. (Points : 30)
Explanation / Answer
For Similar Data the solution and question are ::
OUTPUT ------ TFC ---------- TVC
0 $100.00 0.00
1 100.00 70.00
2 100.00 120.00
3 100.00 150.00
4 100.00 200.00
5 100.00 270.00
6 100.00 360.00
(a.) Refer to the above data. If the product price is $45, at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.
(b.) Refer to the above data. If the product price is $75, at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations
To answer the question, you need to know MC, AC and AVC.
MC=0,70,50,30,50,70,90
AC=0,170,110,83.3,75,74,76.7
AVC=0,70,60,50,50,54,60.
A. if price=$45, the firm will maximize when MC=MR=P, so when output=3, MC=30, and output=4 MC=50. It is possible to produce at output=3. Total revenue=135,Total cost=250. The firm is in a loss=135-250= -115.The price is under AVC which is 50. The firm will shut down and leave the market.
B. if price=$75, the firm will produce at output = 5 which MC=70.Total revenue=375, total cost=370. The firm will have profits=375-370=5.The price of $75 is above the minimum AC which is $74. That means it is above the break-even point.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.