Question

economics

A purely competitive firm finds that the market price for its product is $30.00. It has a fixed cost of $100.00 and a variable cost of $17.50 per unit for the first 50units and then $35.00 per unit for all successive units.

Does price exceed average variable cost for the first 50 units?
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Answer #1

a) Price exceeds average variable cost for first 50 units by 12.5 (30-17.5)

AVC=MC=17.5

b) For first 100 units price exceeds average variable cost by 3.75 (30-26.25)

AVC=(17.5*50+35*50)/100

AVC=26.25

c) Marginal cost is equal to average variable cost always.For first 50 units marginal cost is 17.5

Marginal cost for units above 51 is 35.

d) MR=Price, MC=AVC. From point a we can say that mR exceeds MC for first 50 units YES. But after 51 price is less than MC. The answer is NO

e) The largest profit will be when P=MC or till P>MC. P<MC means losses.

The optimum output level is 50

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