A purely competitive firm finds that the market price for its product is $30.00.

Question

A purely competitive firm finds that the market price for its product is $30.00. It has a fixed cost of $100.00 and a variable cost of $17.50 per unit for the first 50 units and then $37.50 per unit for all successive units. What is the marginal cost per unit for the first 50 units? $ per unit for the first 50 units. What is the marginal cost for units 51 and higher? $ per unit for subsequent units. For each of the first 50 units, does MR exceed MC? For the units 51 and higher does MR exceed MC? What output level will yield the largest possible profit for this purely competitive firm? Producing units will maximize profit.

Explanation / Answer

Total cost of a unit is : 19.50 There is no marginal cost as each excessive unit cost the same Marginal cost for 51 and higher is : chance in cost / chance in quantity (37.50 - 17.50) / (51-50) = 20.00 For first one as price is MR in competitive firms, MR does exceed MC After 50 units as variable price is more than MR, so MC does exceed MR. Output level that the firm should produce is 50 units Profit: 50 *( 30 - 17.50 ) - 100 Profit: 275 If you need any more assistance then I will surely be glad to help you out. Just post a comment

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