Assume that the cost data in the top table of the next column are for purely com
ID: 1255356 • Letter: A
Question
Assume that the cost data in the top table of the next column are for purely competitive prices.
a) At a price of $56 will this firm produce in the short run? If it is preferable to produce what will be the profit maximizing or loss minimizing output? What economic profit or loss will the firm realize per unit of output?
Total Product
Ave Fix Cost
Ave Variable Cost
Ave Total Cost
Marginal Cost
0
1
$60.00
$45.00
$105
$45
2
30
42.5
72.5
40
3
20
40
60
35
4
15
37.5
52.5
30
5
12
37
49
35
6
10
37.5
47.5
40
7
8.57
38.57
47.14
45
8
7.5
40.63
48.13
55
9
6.67
43.33
50
65
10
6
46.5
52.5
75
Total Product
Ave Fix Cost
Ave Variable Cost
Ave Total Cost
Marginal Cost
0
1
$60.00
$45.00
$105
$45
2
30
42.5
72.5
40
3
20
40
60
35
4
15
37.5
52.5
30
5
12
37
49
35
6
10
37.5
47.5
40
7
8.57
38.57
47.14
45
8
7.5
40.63
48.13
55
9
6.67
43.33
50
65
10
6
46.5
52.5
75
Explanation / Answer
A pure competetive firm maximizieoccurs at Price = MC.
Price given is $56, in the given table we can see that when the Total product is 8 units the MC appromimately equals to the price.
Thus 8 units of output is the profit maximizing output.
To calculate the profit or loss we have to calculate the total revenue and total cost at 8 units.
Total revenue = Price x output
= $56 x 8
= $448
Total cost = ATC x output
= 48.13 x 8
= $385.04
Profit = $448 - $385.04
= $62.96
Per unit profit = Price - ATC
= $56 - $48.13
= $7.87
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