Utilizing the following chicken wing production function that you had completed
ID: 1223354 • Letter: U
Question
Utilizing the following chicken wing production function that you had completed in homework 2 that includes output and cost information for a firm, respond to the questions given, assuming the firm is a perfectly competitive firm: Assume that the selling price for chicken wings is $2.50. What would be the profit maximizing rate of output? Would the firm be generating profit above all costs at that selling price? If the price of chicken wings drops to $2.00, how many chicken wings should be produced then? Are you making profit above all costs at $2 chicken wings? At what price would be the short-run breakeven point? At what price should the firm shut down?Explanation / Answer
a) If price of a chicken wing is $2.5, it means Marginal rvenue is $2.5. Thus for getting maximum profit a firm's MR should be equal to its Marginal Cost. Marginal cost is $2.2 that is most near to Price at 331 output. Thus profit maximizing output is 331 chicken wings.
Yes at this output, TC = 802.50
TR = P*Output = 2.5*331 = 827.5
Profit = TR-TC = $25.
b) If price drops to $2, then it would sell 293 output.
At this price, TR = P*Output = 2*293 = 586
TC = 717.50
Profit = TR-TC = -131.5
No its not making profit now.
c) At break even TR = TC.
If the firm sells 293, then at price of 2.44 TR will be equal to TC.
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