2. Below is a table with total data for a firm in a perfectly competitive indust
ID: 1243335 • Letter: 2
Question
2. Below is a table with total data for a firm in a perfectly competitive industry. Quantity Total Cost 0 100 10 220 15 300 20 360 25 450 30 600 35 770 40 960 a. What is the marginal cost and average total cost for the firm at each level of output? b. If the prevailing market price is $34 per unit, how many units will be produced and sold? What are the profits per unit? What are total profits? c. Is the industry in long run equilibrium at this price? If not, what do you expect to happen to price over time?Explanation / Answer
2. Below is a table with total data for a firm in a perfectly competitive industry. Q TC MC ATC REV Profit @Q=0 TC=100 MC= - ATC= - REV= - Profit= - ; @Q=10 TC=220 MC=12 ATC=22 REV= 340 Profit=120; @Q=15 TC=300 MC=16 ATC=20 REV=510 Profit=210; @Q=20 TC=360 MC= 12 ATC=18 REV=680 Profit=320; @Q=25 TC=450 MC=18 ATC=18 REV=850 Profit=400; @Q=30 TC=600 MC=10 ATC=20 REV=1020 Profit=620; @Q=35 TC=770 MC=14 ATC=22 REV=1190 Profit=420; @Q=40 TC=960 MC=18 ATC=24 REV=1360 Profit=400 a. What is the marginal cost and average total cost for the firm at each level of output? To find MC at Q=1, you subtract ATC at Q=0 (previous quantity) from ATC at Q=1, since MC tells us how much it costs to produce one more unit. So, MC @Q=10 is 220-100=120, but since we increased from zero units to 10, we need to divide by 10, giving an answer of 12. MC@ Q=15 is 300-220=80, divide 80 by 5 since we went from producing 10 to 15 units, and you get 16. MC @ Q=20 is 360-300=60 60/5=12. Repeat at each quantity level. To find ATC simply divide Total Cost by Quantity. So, ATC @Q=10 220/10=22. ATC @Q=15 300/15=20. b. If the prevailing market price is $34 per unit, how many units will be produced and sold? What are the profits per unit? What are total profits? You must first find revenue at each quantity by multiplying Quantity by Price. At Q=10, revenue is 10*34=340, @ Q=15, revenue is 15*34=510. Then find profit at each price level, profit=Revenue-TC. @Q=10, Profit=340-220=120. @Q=15, Profit=510-300=210. Profit is highest at Q=30, profit is $620. Profit per unit at this level is 620/30=$20.67 c. Is the industry in long run equilibrium at this price? If not, what do you expect to happen to price over time? This industry is not in long-run equilibrium because profit is greater than zero. Firms will enter the market and decrease the price until profit=0.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.