A firm in a perfectly competitive industry knows the following about its costs a

Question

A firm in a perfectly competitive industry knows the following about its costs and revenue. The firm would like to maximize profit and has hired a consultant for advice.

A firm in a perfectly competitive industry knows the following about its costs and revenue. The firm would like to maximize profit and has hired a consultant for advice tal P? 6,900 TC? 4,500 tal TVC? 4 12 Part 1. Price Number Part 2: Quantity Number Part 3. Total Cost Number Part 4. Total Variable Cost Number Part 5. What is the value of the profit or loss (-) at the current output ( include the - sign if it's a loss Number Part 6. Consultant's Advice: As a consultant, what advice would you give to this firm:(Choose ONE answer from the following) *worth 5 marks Number 1. Firm should do nothing; it is already profit maximizing/loss minimizing 2. Firm should reduce quantity of output 3. Firm should increase quantity of output 4. Firm should shutdown operations 5. The given number set is inconsistent

Explanation / Answer

Answer
Part 1
Price=total revenue/quantity
average fixed cost=average total cost-average variable cost
=8-4=4
Quantity=total fixed cost/average fixed cost=4500/4=1125
Price=6900/1125
=6.13333333
the price is $6.13
Part 2
average fixed cost=average total cost-average variable cost
=8-4=4
Quantity=total fixed cost/average fixed cost=4500/4=1125
Quantity=1125

part 3
Total cost=ATC*Q=8*1125
=9000
Part 4
TVC=AVC*Q=4*1125=4500

Part 5
Profit=TR-TC
=6900-9000
=-2100
the loss is $2100 (-2100)

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