Output Total Cost 0 $5 1 $10 2 $12 3 $15 4 $24 5 $40 produce 4 units of output i

Question

Output

Total Cost

0

$5

1

$10

2

$12

3

$15

4

$24

5

$40

       produce 4 units of output in the short run and exit in the long run.
       produce 5 units of output in the short run and exit in the long run.
       produce 5 units of output in the short run and face competition from new market entrants in the long run.
       shut down in the short run and exit in the long run.

14. A firm in a competitive market has the following cost structure:

Output

Total Cost

0

$5

1

$10

2

$12

3

$15

4

$24

5

$40

If the market price is $16, this firm will (Points : 5)

Explanation / Answer

Since marginal cost at 5 units is (40-24)= 16 and since price = marginal revenue in a competitive market he will produce where P=MR=MC or at 5 units. Since at 5 units there will be economic profits of 5*16-40= 40, more resources will flow into the market seekeing economic profits and there will be competition in the future.

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