Consider a firm operating in a competitive market. The firm is producing 40 units of output,...
Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?
Homework Answers
The firm is producing 40 units of output
Average cost is $5,
Earning is $240
The firm production here is 40 units and $5 is the cost per piece so total cost is $200.
Economic profit is $240 that means, revenue must also include this economic profit
So 200+240 = 440
440/40 = 11
So current price of $ 11 can guarentee that cost of 5 be recovered and $240 profits can be generated.
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