Assume that the cost data in this table are for a purely competitive producer:At
ID: 1256952 • Letter: A
Question
Assume that the cost data in this table are for a purely competitive producer:At a product price of $20.00 how much economic profit can be achieved at each level of output? What about at $14 and $8?
Total
Product
Average
Fixed Cost
Average
Variable Cost
Average
Total Cost
Marginal
Cost
0
20
1
$50.00
$20.00
$70.00
12
2
25
16.00
41.50
8
3
16.66
13.34
26.00
8
4
12.50
11
23.50
4
5
10.00
9.60
19.60
6
6
8.34
9.00
17.34
10
7
7.14
9.14
16.28
16
8
6.26
10.00
16.26
28
9
5.56
12.00
17.56
42
10
5.00
15.00
20.00
Total
Product
Average
Fixed Cost
Average
Variable Cost
Average
Total Cost
Marginal
Cost
0
20
1
$50.00
$20.00
$70.00
12
2
25
16.00
41.50
8
3
16.66
13.34
26.00
8
4
12.50
11
23.50
4
5
10.00
9.60
19.60
6
6
8.34
9.00
17.34
10
7
7.14
9.14
16.28
16
8
6.26
10.00
16.26
28
9
5.56
12.00
17.56
42
10
5.00
15.00
20.00
Explanation / Answer
A pure competitor maximizes profit by equating price with MC.
So,
(a) When P = 20, MC = 20 at Q = 1.
Profit = Q x (P - ATC) = 1 x $(20 - 70) = 1 x - $50 = - $50 (Loss)
(b) When P = MC = $14, Q = 8 (closest value)
Profit = 8 x $(14 - 16.26) = 8 x - $2.26 = - $18.08 (loss)
(c) When P = MC = 8, Q = 4
Profit = 4 x $(8 - 23.50) = 4 x - $15.50 = - $62
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.