A purely competitive firm finds that the market price for its product is $20. It

Question

A purely competitive firm finds that the market price for its product is $20. It has a fixed cost of $100 and a variable cost of $10 per unit for the first 50 units and then $25 per unit for all successive units.

Instructions: Enter your answers as whole numbers.

a. Does price equal or exceed average variable cost for the first 50 units? (Click to select)NoYes.

     What about for the first 100 units? (Click to select)NoYes.

b. What is the marginal cost per unit for the first 50 units? $ per unit.

     What is the marginal cost for units 51 and higher? $ per unit.

c. For each of the first 50 units, does MR exceed MC? (Click to select)YesNo.

     What about for units 51 and higher? (Click to select)MR > MCMR < MC.

d. What output level will yield the largest possible profit for this purely competitive firm?  units.

Explanation / Answer

a. yes, the price exceed average variable cost for the first 50 units

yes, he price also exceed average variable cost for the first 100 units.

b. MC for first 50 units = $10 per unit

MC for and higher $25 per unit

c. yes, MR exceed MC for the first 50 units

MR<MC, MC exceed MC for the 51 and highr units

d. 50 units

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