Average Average Variable Total Marginal Quantity Cost Cost Cost 1 $ 50 $ 90 $ 50

Question

Average Average
Variable Total Marginal
Quantity Cost Cost Cost
1 $ 50 $ 90 $ 50
2 45 65 40
3 40 53 30
4 35 45 20
5 34 42 30
6 35 41 40
7 37 43 50
8 40 45 60
a) At a product price of $ 40, how many units will this firm produce in the short-run? EXPLAIN. What will be its profits or losses? b)At a product price of $ 50, how many units will this firm produce in the short-run? c) At a product price of $ 60, how many units will this firm produce in the short-run?

Explanation / Answer

The firm wants to price where P=MC (Marginal Cost). So at P=40 it will produce 6 units>Since total cost is 41 it will lose 6*(40-41)=6. At 50 it will produce 7 units and make 7*(50-43)= 49. At 60 it will produce 8 and make 8 (60-45)= 120.

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