Question

Assume that the following cost data are for a purely competitive producer: Total Prod Average Fixed Cost Marginal Cost 1 $45 40 Average Variable Cost $0.00 $45.00 42.50 40.00 37.50 37.00 37. 50 38.57 3 $60.00 30.00 20.00 15.00 12.00 10.00 8.57 7.50 35 Average Total Cost $0.00 $105.00 72.50 60.00 52 50 49. 00 4 7.50 47.14 48. 13 50.00 3 30 5 40 45 6 65 8 4053 5 6.67 Answer the questions in the first column in the table below for each of the prices listed at the top of each of the three and (c) Colar "Nataniahaan antar athafnac < Prex 15 of 20 !!! Next > MacBook Air W

Answer 1

At a product price of $56 At a product price of $41 At a product price of $32 Will a firm produce in the short run Not applicable 0 (as the firm will not produce, since Pis < Minimum AVC of $37. Yes, yes 6 units (MR>MC) Profit-maximizing or loss- minimizing output Economic Profit per unit of output 8 units (MR>MC) $56-$48.13=$7.87 per unit profit Not applicable 0 ( as the firm will not produce Not applicable 0 (as the firm will not produce Loss. -$41-$47.50=$6.50. Profit-maximizing output for a perfectly competitive firm in the short run is P=MC. The shut-down point is the minimum SAVC. A firm will supply as long as its minimum SAVC is covered. This will minimize the economic loss as the fixed costs are already incurred Economic profit = Total revenue – total costs (implicit + explicit) At $56, applying P=MC, it will produce 8 units as MR (P=$56) exceeds MC of $55. The ATC is $48.13, so economic profit per unit is $56-48.13=$7.87 per unit profit.

d) and e) MC cuts AVC from below at the minimum point on the AVC curve. Beyond that MC rises. It becomes the supply curve of the firm as the firm will produce when P > minimu Quantity supplied by single firm Price $ 26 32 38 41 Quantity supplied by 1500 firms ( multiply the quantity supplied by a single firm by 1500 firms) 0 0 7500 9000 10500 12000 13500 Profit or loss $-60 (loss) $-60 (loss) $-55(loss) $-39 (loss) $-8 (loss) $63 (profit) $144 profit 5 46 56 66 9 f) Price $ 26 0 O 32 38 Quantity demanded Quantity supplied 17,000 15,000 13,500 12,000 10,500 9,500 8,000 41 46 7500 9000 10500 12000 13500 56 66 Equilibrium price is $46. Equilibrium output is 10,500 Each firm will supply 7 units. Loss of $8 per firm ($1.14*7). Firms will exit as P<ATC, the industry will contract. At 7 units, ATC is $47.14 which is less than the equilibrium price of $46.