Use the chart below to answer the following questions. Assume that this is a per

Question

Use the chart below to answer the following questions. Assume that this is a perfectly competitive industry and that only whole units are produced. 1 1000o 2 200 106 3 280 4 340 5 410 6 500 0 7 610 l 1. What is the ATC at 3 units of output? 2. What is the marginal cost of producing the 6th unit? 3. If the price per unit were $72, how many units would this profit-maximizing firm produce? 4. At a price of $72 per unit, would this firm be making a profit or a loss? 5. How much profit/loss per unit? 03.3 90 6. How much of a profit/loss total? 7. If the price rose to $90, would this firm be making a profit or a loss? 8. How much of a profit/loss per unit? 9. How much of a profit/loss total?

Explanation / Answer

1. ATC = TC/Q = 280/3 = 93.3
2. MC =TC6 -TC5 = 500 - 410 = 90
3. A firm produces where P = MC which is at 5th unit.
4. ATC at 5 unit = 410/5 = 82 >P
Firm is making loss.
5. Loss = 82-72 = 10
6. Total Loss = 10 x 5 = 50

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