5. Here are some numbers: OUtp Marginal cost Variable cost Average fixed cost Pr

Question

5. Here are some numbers:
OUtp Marginal cost     Variable cost Average fixed cost        Price per unit
1               20                     ?                  300                                50
2              49                      ?                   150                                50
3               60                     ?                   100                                 50
4              80                     ?                   75                                 5
(a) What kind of firm is this?
(b) What level of output should it produce? Explain 5. Here are some numbers:
OUtp Marginal cost     Variable cost Average fixed cost        Price per unit
1               20                     ?                  300                                50
2              49                      ?                   150                                50
3               60                     ?                   100                                 50
4              80                     ?                   75                                 5
(a) What kind of firm is this?
(b) What level of output should it produce? Explain

Explanation / Answer

1) The firm must be fairly established, since if it were a new firm marginal costs would initially drop due to learning and specialization effects. 2) it should produce an output where MC=MR to maximize profit (or minimize losses). Here it should produce 2 units, because at 3 MC exceeds MR (MR=price here, since price does not change with output).

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