Question 1: GenericRus produces a commodity in a perfectly competitive market. I

Question

Question 1: GenericRus produces a commodity in a perfectly competitive market. In the short run, it has fixed costs equal to $1,200, and its AVC is as follows:

Q (first number)
AVC ($ Price)
----
1
$215
2
$180
3
$160
4
$130
5
$160
6
$180
7
$200
8
$235


A. How many units of output would the firm produce in the short run if the market price were P=$270? Explain. (Be brief and precise; no more than 5 lines.)
B. How many units of output would the firm produce in the short run if the market price were P=$100? Explain. (Be brief and precise; no more than 5 lines.)
C. What will happen to the supply curve of this firm in the following cases? (a) The government imposes a tax on all firms in the industry in which GenericRus operates; (b) The price of an input used by the firm in the production process decreases. Draw a picture in each case.

Explanation / Answer

it has fixed costs equal to $1,200, and its AVC is as follows: 1 1..$215 2 $180 3 $160 4 $130 5 $160 6 $180 7 $200 8 $235 a..How many units of output would the firm produce in the short run if the market price were P=$270? • In the short-run we assume the firm’s capital input is fixed and must vary its other inputs (labor and materials) to vary output • When the price is greater than the minimum average variable cost, the firm should produce in the short run. P=$270 so quantity produced will be more than 8 so that it could earn more revenue . b)))market price were P=$100 When the market price is below minimum average variable cost, the price the firm receives is not covering its variable cost per unit. A firm in this situation should cease production immediately. – Why? Because there is no level of output at which the firm’s total revenue costs its total variable costs – the costs it can avoid by not operating. – The firm maximizes its profits by minimizing its losses. – It still incurred the fixed cost in the short run but will not incur any variable costs . c)))the government imposes a tax on all firms in the industry in which Generic Rus operates; this will increase the cost of production so the same quantity will be supplied at a higher price . in the price versus quantity curve where price is on y axis supply curve will upwards ****The price of an input used by the firm in the production process decreases . in this case supply curve move downwards same quantity will be supplied at a lower price ..

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.