Question

The table shows cost data of a purely competitive firm. Use this data to determine if each statement is true or false. Assume that any losses that the firm may earn are temporary, Output 100 200 Total fixed cost $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 Total variable cost SO $18,000 $30,000 $46,000 $66,000 $92,000 300 400 500 If the market price is $160, then the firm will shut down. If the market price is $200, then the breakeven point is at 200 units of output If the market price is $182, then the firm will produce and carn a negative economic profit. If the price is $200, then the firm will produce and earn a positive economic profit.

Answer 1

Total Fired Cost Total variable cost Total o 100 200 300 400 500 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $18,000 $ 30,000 $ 46,000 $66,000 $92000 $10,000 $ 28,000 $ 40,000 $ 56,000 $76,000 $1;02,000 | Anurage variable Cost Marginal lost Average Total cost . $18ł $150 $153-3 $ 165 $184 $ 18,000 $12,000 $ 16,000 $ 20,000 $ 26,000 $ 280 $ 200 $186.67 $ 190 $ 204 Im a purely competitive market in the long hun we have p =Mc = ATC . and zers profit. This point is known as the breakonen point where profit is zero and p = ATC 4 P = $200 them at break even point we must have ATC = $200. As we can see from the above stable that ATC = $200 for quantity = 200 units Hence, first statement is true .

A firm decides to shut down if market price is less than anerage variable cost. As we can see from the table that the mint minimum value of Ave is 9 150 for 200 units of output 8 of market price is $160 then there is a possibility for the firm to produce and not to shut down . Hence the second statement is false, omd The firm will earn negative economic profit if market price is aboue o minimum of average variable cost but below the average total cost. The market price of $182 is above the mimimum value of smerage valuable cost ($ 150) ang below the minimum value of anerage total cost ($186.67). Hence, the firm will produce and earm a megative economic profit. This statement is true, y market price is $200 then this price will now be above the minimum of both anorage variable cost and ancrage total cost. Hence the firm will produce and earn positive elemomie ferofit. This statement is true