If it is preferable to produce, what will be the profit-maximizing or loss-minim

ID: 1215970 • Letter: I

Question

If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output?

(Click to select)Loss-minimizingProfit-maximizingNot applicable
output = units
per firm

(Click to select)Not applicableLoss-minimizingProfit-maximizing
output = units
per firm

(Click to select)Not applicableProfitLoss
per unit = $

(Click to select)LossProfitNot applicable
per unit = $

(Click to select)Total lossTotal profit
= $

d. In the table below, complete the short-run supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3).

Instructions: Enter your answers as whole numbers. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

e. Now assume that there are 1,500 identical firms in this competitive industry; that is, there are 1,500 firms, each of which has the cost data shown in the table. Complete the industry supply schedule (column 4 in the table above).

f. Suppose the market demand data for the product are as follows:

What will be the equilibrium price? $.

What will be the equilibrium output for the industry? .

For each firm?   units.

Instructions: Round your answers to 2 decimal places. Enter positive values for profit or loss.

What will profit or loss be per unit? (Click to select)LossProfit per unit = $.

Per firm? $.

Will this industry expand or contract in the long run?  (Click to select)ExpandContract.

(a)
At a product price of $68.00 (b)
At a product price of $43.00 (c)
At a product price of $34.00 Will this firm produce in the short run? (Click to select)NoYes (Click to select)YesNo (Click to select)YesNo

If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output?

(Click to select)Loss-minimizingProfit-maximizingNot applicable
output = units
per firm

(Click to select)Not applicableLoss-minimizingProfit-maximizing
output = units
per firm

What economic profit or loss will the firm realize per unit of output?

(Click to select)Not applicableProfitLoss
per unit = $

(Click to select)LossProfitNot applicable
per unit = $

(Click to select)Total lossTotal profit
= $

Assume that the following cost data are for a purely competitive producer: TotalMargina Total Product Average Fixed Average Fixed Average Average Total Variable Cost Marginal Cost Cost Cost 0.00 S 45.00 $ 42.50 $ 40.00 $ 37.50 $ 37.00 S 37.50 $ 38.57 S 40.63 $ 43.33 $ 46.50 $ 0.00 105.00$ 72.50 S 60.00 52.50 $ 49.00 $ 47.50 $ 47.14 $ 48.13 $ 50.00 $ 52.50 S na na 60.00 $ 30.00 $ 20.00 $ 15.00 $ 12.00 $ 10.00 $ 8.57 7.50 $ 6.67 $ 6.00 $ 45.00 40.00 35.00 30.00 35.00 40.00 45.00 55.00 65.00 75.00 4 6 7 10

Explanation / Answer

a. At a product price of $68, will this firm produce in the short run? If it is preferable to produce, what will be the profit maximizing or loss minimizing output? Explain. What economic profit or loss will the firm realize per unit of output?

Ans:- Yes, $68 exceeds AVC (and ATC) at the profit-maximizing output. Using the MR = MC rule it will produce 9 units. Profits per unit = $18.00 (= $68 - $50.00); total profit = $162.

b. At a product price of $43, will this firm produce in the short run? If it is preferable to produce, what will be the profit maximizing or loss minimizing output? Explain. What economic profit or loss will the firm realize per unit of output?

Ans:- Yes, $43 exceeds AVC at the loss—minimizing output. Using the MR = MC rule it will produce 6 units. Loss per unit or output is $4.50 (= $43 - $47.50). Total loss = $27 (= 6 € $6.50), which is less than its total fixed cost of $60.

c. At a product price of $34, will this firm produce in the short run? If it is preferable to produce, what will be the profit maximizing or loss minimizing output? Explain. What economic profit or loss will the firm realize per unit of output?

Ans:- No, because $34 is always less than AVC. If it did produce according to the MR = MC rule, its output would be 4—found by expanding output until MR no longer exceeds MC. By producing 4 units, it would lose $74 [= 4 ($34 - $52.50)]. By not producing, it would lose only its total fixed cost of $60.

d. In the table below, complete the shortrun supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3).

Ans:-

Price

Quantity supplied,single firm

Profit (+)or loss (l)

Quantity supplied,1500 firms

$24

-74

6000

-33

9000

-8

10500

12000

162

13500

Product Price = $34 ATC = $52.50 Units = 4 Profit = (34 – 52.50) x 5 Profit = -$18.50 x 4 Loss = -$74

Product Price = $41 ATC = $47.50 Units = 6 Profit = (41 – 47.50) x 6 Profit = -$6.50 x 6 Loss = -$32.50

Product Price = $46 ATC = $47.14 Units = 7, Profit = (46 – 47.14) x 7 Profit = -$1.14 x 7 Loss = -$7.9

Product Price = $57 ATC = $48.13 Units = 8, Profit = (57 – 48.13) x 8 Profit = 8.87 x 8 Loss = $70.96

Product Price = $68 ATC = $50.00 Units = 9 Profit = (68 – 50) x 9 Profit = $18 x 9 Profit = $162.00

Ans:- $24: 0 x 1500 = 0 , $29: 0 x 1500 = 0 , $34: 4 x 1500 = 6,000, $41: 6 x 1500 = 9,000, $46: 7 x 1500 = 10,500, $57: 8 x 1500 = 12,000, $68: 9 x 1500 = 13,500

f. What will be the equilibrium price? What will be the equilibrium output for the industry? For each firm? What will profit or loss be per unit? Per firm? Will this industry expand or contract in the long run?

Ans:- Where supply = demand Equilibrium Price = $46.00 Equilibrium Output for industry = 10,500 units Each firm produces = 7 units Loss per unit = -$1.14 Loss per firm = -$7.98

The industry will contract in the long run if it were to produce at the equilibrium price and output. This is because the firm is experiencing economic losses at producing at the equilibrium price. Therefore in time the resulting economic losses will induce the firm to leave the particular industry. The owners of the firms will seek a normal profit elsewhere rather than continuing to accept the below-normal profits (losses) that continues to confront them