Question

Saved Problem 9-4 (Algo) Assume that the following cost data are for a perfectly competitive producer 0.00 Total Product Average Fixed Average Average Total Cost Variable Cost Cost Marginal Cost 0 na $ $ 0.00 na 1 $ 60.00 $ 45.00 $ 105.00 $ 45.00 2 S 30.00 $ 42.50 $ 72.50 $ 40.00 3 $ 20.00 $ 40.00 $ 60.00 $ 35.00 4 $ 15.00 $ 37.50 $ 52.50 S 30.00 5 $ $ 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 S 6.67 $ 43.33 $ 50.00 $ 65.00 10 $ 6.00 $ 46.50 $ 52.50 $ 75 00 12.00 Answer the questions in the first column the table below for the price listed at the top of each of the other three columns Instructions: Round your answers to 2 decimal places. If you are entering any negative numbers be sure to include a negative sign )

Answer 1

	At a product price of $66	At a product price of $41	At a product price of $32
Will a firm produce in the short run	Yes,	yes	Not applicable 0 ( as the firm will not produce, since P is < Minimum AVC of $37.
Profit-maximizing or loss-minimizing output	9 units (MR>MC)	6 units (MR >MC)	Not applicable 0 ( as the firm will not produce
Economic Profit per unit of output	$66-$50=$16 per unit profit	Loss. -$41-$47.50=$6.50.	Not applicable 0 ( as the firm will not produce
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 $66, applying P=MC, it will produce 9 units as MR (P=$66) exceeds MC of $65.
The ATC is $50, so economic profit per unit is $66-$50=$16 per unit profit.
At $41, applying P=MC, it will produce 6 units as MR (P=$41) exceeds MC of $ 40..		.
The AVC is $37.50, the firm will produce in the short run because P > minimum AVC.
The ATC at 6 units of output is $47.50 which exceeds the Price. The firms will suffer a loss. The loss per unit is $47.50-$41=$6.50.
At price of $32 per unit, the firm will not produce as this is below the minimum AVC of $37 per unit.
Price $	Quantity supplied by single firm	Profit or loss	Quantity supplied by 1500 firms ( multiply the quantity supplied by a single firm by 1500 firms)
22	0	$-60 (loss)	0
27	0	$-60 (loss)	0
32	4	$-82 (loss)	6000
38	5	$-55 (loss)	7500
43	6	$-24.84 (loss)	9000
47	7	$-0.98 (loss)	10500
57	8	$70.96 profit	12000
When output is 0 only fixed cost of $60 is incurred, this is the loss
When price is $32, quantity supplied is 4, the ATC is $52.50, the loss is $52.50-$32= $20.50 per unit. For 4 units, the loss is $20.50 x 4=$82
When price is $38, quantity supplied is 5, the ATC is $49, the loss is $49-$38= $11 per unit. For 5 units, the loss is $11 x 5=$55
When price is $43, quantity supplied is 6, the ATC is $47.50, the loss is $47.14-$43= $4.14 per unit. For 6 units, the loss is $4.14 x 6=$24.84
When price is $47, quantity supplied is 7, the ATC is $47.14, the loss is $47.14-$47= $0.14 per unit. For 7 units, the loss is $0.14 x 7=$0.98
When price is $57, quantity supplied is 8, the ATC is $48.13, the profit is $57-$48.13= $8.87per unit. For 8 units, the profit is $8.87 x 8=$70.96
Price $	Quantity demanded	Quantity supplied
22	19,000	0
27	17,000	0
32	15,000	6000
38	13,500	7500
43	12,000	9,000
47	10,500	10500
57	9,500	12000
Equilibrium price is $47.
Equilibrium output is 10,500
Each firm will supply 7 units.
Loss of $0.14 per unit.
Per firm will be $0.14 x 7=$0.98.
Firms will exit as P<ATC, the industry will contract.