Question

help with all parts

ems. Answer ALL of the problems (60 points, 20 points per question) 1. Use figure 1 below to answer the following questions. Price and Cost (5) 20 » 50 100 Quantity Figure 1 a. Given a market price of $70, what price should the farmer charge? 3 b. What is the farmer's profit maximizing level of output? ro Given the level of output from part (a), what is the farmer's profit/loss? ts it a profit or a loss? p-TA TC c. profit d. What are the farmer's fixed costs? e. What is the farmer's shutdown price? Explain. btcoute Farmr's Shut down Pnte o uld heoe prcAiャ-f.xed cosx.

Answer 1

Ans. 1 a) Given a market price is $70,

the farmer should charge the price where

P = MR = MC

here, P = MR =$70 = MC

so, the farmer should charge the price, $70

b) at the equilibrium level, the farmer's profit-maximizing level of output is 80 units

c) when P=$70, Q = 80 units and at Q= 80 units, ATC = $50

So, Profit = TR - TC

= PXQ - ATC X Q [ since, ATC= TC / Q, TC= ATC XQ]

= Q x ( P - ATC)

= 80 x ( $70 - $50)

= 80 x $20

Profit  = $1,600

d) when Q = 30, ATC = $50 and AVC =$30

TC = ATC x Q

  = $50 x 30 = $1,500

TVC = AVC x Q

= $30 x 30

= $900

As we know that TC = TFC + TFC

so, TFC = TC - TVC

TFC = $1,500- $900

TFC = $600

hence, the farmer's fixed cost is $600

e) the farmer's shut down point is where

P = AVC

when P = AVC = $30

this is the farmer's shut down price because if the price is less than this farmer will not cover up the cost that incurred during the production so he will shut down the production.