Question

1. Suppose Andy sells oranges in a perfectly competitive market. The following table represents his output and costs: Output Total Fixed Variable ATC AFC AVC MC per day Cost Cost Cost $10.00 $20.50 $24.50 $28.00 $34.00 $43.00 $55.50 $72.00 $93.00 $119.00 a) Fill in the missing columns b) Suppose the equilibrium price for oranges in the market is $12.50. How many oranges should Andy sell if he wants to maximize profits? What price will he charge for a unit of orange? c) Will Andy make a profit or loss? Calculate his profit/loss. d) Show the solution in a graph, clearly labelling Andy's MC, ATC, AVC, and quantity sold by Andy. e) Suppose equilibrium price for oranges in the market falls to $6.00. How many oranges will be sold by Andy? Is he making a profit or a loss at this level of production?

Answer 1

odno nero FC VC ATC AFC AVE MC ETC-FC = TO=F40 =vyo = ATC lo lo os- 20.50 10 10.50 20.50 10 10.50 10.50 24.50 10 14.50 12.25 5 7.25 y 28 16 118 9.33 3.336 13.50 24 18.5 12.5 6 43 10 33 18.6 2 6.6 9 45.50 9.25 1 1.671 7.58 112.50 72 10 62 10.28 1.43 8.85 16.5 1 93 10 83 11.62 1.25 10.37 21 1119 116 1169 113.22 lill 12.11 26 (b) suppose p= $12.50. Then, Andy should h 6 orarges because the proft maximization condition is PCML . He will charge $12.50 for a unit of orange.

- (c) Andy will make a profit | (TP) - (7) - (12.50) (6) - 55.50 = 75-55.50 Profit - $19.50 lotting get the MC, ATC and are graph as shown belows ATE, AVL, MG AVO 0 1 3 ur 6 7 8 9 10 - Output

(e) Suppose Price fall to a profit madmiration 6. quantity Чотири is & Andy will make a loss because PC ATC. So, loss = TR-TC = (6) (4) - 34 - 24-34 loss = $ 10