Quantity |
Fixed Costs |
Variable Costs |
Total Costs |
Average Total Cost |
Average Variable Costs |
Marginal Cost |
1 |
$1000 |
$600 |
|
|||
2 |
$1000 |
$1100 |
||||
3 |
$1000 |
$1500 |
||||
4 |
$1000 |
$1800 |
||||
5 |
$1000 |
$2200 |
||||
6 |
$1000 |
$2700 |
||||
7 |
$1000 |
$3400 |
||||
8 |
$1000 |
$4500 |
Q | FC | VC | TC | ATC | AVC | MC |
1 | 1000 | 600 | 1600 | 1600 | 600 | 600 |
2 | 1000 | 1100 | 2100 | 1050 | 550 | 500 |
3 | 1000 | 1500 | 2500 | 833.3333 | 500 | 400 |
4 | 1000 | 1800 | 2800 | 700 | 450 | 300 |
5 | 1000 | 2200 | 3200 | 640 | 440 | 400 |
6 | 1000 | 2700 | 3700 | 616.6667 | 450 | 500 |
7 | 1000 | 3400 | 4400 | 628.5714 | 485.7143 | 700 |
8 | 1000 | 4500 | 5500 | 687.5 | 562.5 | 1100 |
a) TC=FC+VC
ATC=TC/Q
AVC=VC/Q
MC=change in TC/change in Q
b) The company will shut down at any price below its minimum AVC = 440
c) P=750
The firm will set P=MC for profit maximization so it will produce Q=7 units
profits = TR-TC = (750*7)-4400 = 850
d) More firms will enter the market in the long run as the industry is earning positive profits.
As more firms enter, the supply increases which decreases the price until it is equal to the minimum ATC so the profits becomes zero in the long run and the firms only earn normal profits.
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