Assume that the following cost data are for a purely competitive producer:
|
total product |
average fixed cost |
average variable cost |
average total coast |
marginal cost |
| 0 | na | $0.00 | $0.00 | na |
| 1 | $60.00 | $45.00 | $105.00 | $45.00 |
| 2 | $30.00 | $42.50 | $72.50 | $40.00 |
| 3 | $20.00 | $40.00 | $60.00 | $35.00 |
| 4 | $15.00 | $37.50 | $52.00 | $30.00 |
| 5 | $12.00 | $37.00 | $49.00 | $35.00 |
| 6 | $10.00 | $37.50 | $47.50 | $40.00 |
| 7 | $8.57 | $38.57 | $47.14 | $45.00 |
| 8 | $7.50 | $40.63 | $48.13 | $55.00 |
| 9 | $6.67 | $43.33 | $50.00 | $65.00 |
| 10 | $6.00 | $46.50 | $52.50 | $75.00 |
Answer the questions in the first column in the table below for the price listed at the top of each of the other three columns.
Homework Answers
a)
Total variable cost= Variable cost per unit x Number of units
$10 x 50= $500.
Average variable cost= Total variable Cost/Number of units=$500/50=$10.
Price=$30.
Yes. Price exceeds average variable cost= $30 > $10.
b)
Total variable cost
For first 50 units= $10 x 50= $ 500.
For 51-100 units= $35 x 50=$1,750.
Total variable cost for 100 units = $500 + $1,750=$2,250.
Average Variable cost=$ 2,250/100=$22.50.
Price is $30.
Yes. Price exceeds average variable cost= $30 > $22.50.
c)
Marginal cost is the additional cost incurred by producing one more unit.
The marginal cost for the first 50 units is $10.
The marginal cost for 51 units and higher is $35.
d)
MR=P= $30.
Yes. MR > MC for first 50 units as $30>$10.
MR < MC for 51 units and higher. $30 < $35.
e) For a perfect competition, short term equilibrium is MR= MC. So 50 units will be produced as the MR is < MC for 51 units and higher.
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