Suppose the printing industry is perfectly competitive and George owns one of th

Question

Suppose the printing industry is perfectly competitive and George owns one of the firms in the industry. The firm's production requires one fixed input-a printing machine-and two variable inputs-paper and ink. Suppose George purchased the printing machine for Sioo. Also suppose that the average variable cost (AVC) of producing q units of output is equal to q + 20 dollars per unit of output. You also know that the market demand for printing products is given by P = 50 - 2Q and there are a total of 4 identical firms in the market in the short run. Which of the following represents the total cost (TC) function faced by George's firm? You know that the firm's marginal cost function (MC) is equal to 2q + 20. What is the total quantity of printing products purchased in the market in the short run? The total quantity purchased is Q = 7.5 units. The total quantity purchased is Q = 3 units. The total quantity purchased is 0 = 22 units. The total quantity purchased is Q 12 units. Which of the following statements is correct regarding a firm in a perfectly competitive industry- in the short run, whose cost structure is represented in the graph below? If the equilibrium price is such that the firm is breaking even, average variable cost is decreasing. If the equilibrium price is such that the firm earns negative profits, the average total cost per unit of output is decreasing. If the equilibrium price is below the minimum average variable cost, the firm is earning negative revenue. If the equilibrium price is above the shut-down price, but below the break-even price, the firm is earning negative revenue.

Explanation / Answer

7. TC = TVC + TFC

TVC = AVC xq = ( q+20)q = 20q + q2 and TFC = 100

a) TC =  20q + q2 + 100

8. P = 50 - 2q

TR = Pxq => 50q - 2q2

MR = dTR/dQ => 50 - 4q

MC = dTC/dQ => 20 + 2q

Equilibrium, MR = MC

50 - 4q = 20 + 2q

6q = 30

q = 5

There are 4 firms, total output = 4x5 = 20

8) If the equilibrium price is below minimum AVC, the firm is earning negative revenue. Because firm is not recovering his variable and fixed costs.

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