The above figure shows the cost curves of a profit-maximizing perfectly competit

Question

The above figure shows the cost curves of a profit-maximizing perfectly competitive firm. If the price equals $7,

a) how much will the firm produce?

b) how much is the firm's average total, average variable, and marginal costs?

c) how much is the firm's total cost, total variable cost , and total fixed cost?

d) how much is the firm's total revenue and economic profit?

e) what will happen in this market in the long run?

The above figure shows the cost curves of a profit-maximizing perfectly competitive firm. If the price equals $7, a) how much will the firm produce? b) how much is the firm's average total, average variable, and marginal costs? c) how much is the firm's total cost, total variable cost , and total fixed cost? d) how much is the firm's total revenue and economic profit? e) what will happen in this market in the long run?

Explanation / Answer

In a profit maximising perfect competition environment, a firm produces the quantity for which Price = Marginal Cost. Hence, in the case it would be at Quantity = 40. At quantity 40, the average total cost = $4, average variable cost = $3 and marginal cost= $7. The firms total cost = Quantity * Average total cost = 40 * 4= $160. Total variable cost= Quantity * Average variable cost= 40*3= $120. Total fixed cost= total cost - total variable cost= $160

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