Question

first picture is the table second one is the question

TABLE 8.3 Measuring Costs Quantity (Q-Big Macs Total Cost TVC Average VariableAverage produced perVariable Total Fixed Cost TFC AverageMarginal hour) Abbreviation: Total Cost Cost Fixed Cost Total Cost AVC AFC ATC Formula: $0.00 $100.00 $100.00 30.00 一 130,00 $.00 $10.00 13.00 100.00 5000 100.00 65.00 100.00 77.00100.00 20 30 5.00 3.33 2.17 1.93 1.74 165.00 177.00 187.00174 200.001.67 220.001.71 260.00 320.00 2.44 400.00 3.00 1.00 1.30 2.00 87.00 100.00 100.00 100.00 100.00 160.00100.00 220.00 100.00 300.00 100.00 74 1.67 1.43 60 70 3.14 3.25 120.00 100 as Dae 257, please respond to ess (12 Points) Usi hour, inth at is the minimum number (quantity) the firm will supply to the market, per hour, in the short run? b. What i s the minimum number (quantity) the firm will supply to the market, per hour, in the long run? What is the lowest acceptable price, per unit, in the short run? What is the lowest acceptable price, per unit, in the long run? c. d. e market price is $4 per unit produced and sold, how many will they produce and sell? What will be the firm's hourly profit? Will this be an expanding (firms wanting to enter) or contracting (exiting firms) industry? How do you know? f. If the market price is $2 per unit produced and sold, how many will they produce and sell? What will be the firm's hourly profit? Will this be an expanding (frms wanting to enter) or contracting (exiting firms) industry? How do you know? Over what range of price will the firm "not be earning positive economic profits" but still consent to produce and sell into the market in the short run since (at least) some fixed costs are being paid? g. "outnut ner day" and actual consumption per day of Goods X and

Answer 1

a)

Firm will decide to operate in short run if minimum AVC is higher than or equal to price. Minimum AVC is shutdown price in short run.

In this case, minimum AVC is $1.67. Output is 60 units per hour.

b)

Firm will decide to operate in long run if minimum ATC is higher than or equal to price. Minimum ATC is $3.14 in this case.

In the case of minimum ATC, output is 70 units per hour.

c)

Minimum acceptable price in short run=Minimum AVC=$1.67

d)

Minimum acceptable price in long run=Minimum ATC=$3.14

e)

A competitive firm increases its output level such that MC>P or MC=P

Price is equal to MC i.e. $4 at output level of 80 units per hour. but MC>P for output level of 90 units.

So, optimal output is 80 units at a market price of $4 per unit.

Firm's optimal output=(P-ATC)*Q=(4-3.25)*80=$60 per hour

Since firm is making positive profit, other firms will enter into the market. It will be a expanding industry.

f)

A competitive firm increases its output level such that MC>P or MC=P

Price is equal to MC i.e. $2 at output level of 70 units per hour. but MC>P for output level of 80 units.

So, optimal output is 70 units at a market price of $2 per unit.

Firm's optimal output=(P-ATC)*Q=(2-3.14)*70=-$79.80 per hour (Its a loss)

Since firm is making negative profit, other firms will exit from the market. It will be a contracting industry.

g)

Firm will operate between minimum AVC and minimum ATC. So, given firm will operate in the following price range without positive economic profit.

1.67< P< 3.14