(10 points) Assume the following cost data are for a perfectly competitive firm.
ID: 1125183 • Letter: #
Question
(10 points) Assume the following cost data are for a perfectly competitive firm. Total Fixed Variable Total Average Average Average Fixed Variable Total Cost ProductCos CostCost Cost 0 $100 $0 $100 $100 S44 $144 $100.00 $43.74$143.74 $43.74 2 $100 S84 $184 $50.00 $41.92 S91.92$40.10 3 $100 S120 $220 $33.33$40.10 S73.43$36.45 4 $100 S153 253 $25.00 $38.27 S63.27$32.81 5 $100 S190 $290 $20.00 $37.91S57.9$36.45 6 $100 S230 $330 $16.67 $38.27 S54.94$40.10 7 $100 S273 $373 $14.29 $39.05 S53.34$43.74 8$100 S324 $424 $12.50 $40.55 S53.05$51.03 9 $100 S383 $483 $111$42.53S53.64$58.32 10 S100 S448 $548 $10.00 $44.83S54.83 $65.61 a. At a product price of S35, will this firm produce in the short run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? What economic profit or loss will the firm realize? b. Answer the same questions assuming product price is $45 c. Answer the same questions assuming p roduct price is $55Explanation / Answer
Answer
a)
the price is below minimum average variable cost so the firm will shut down to minimize losses
and the loss will be equal to fixed cost
=100
it will produce zero unit and the loss is $100
b)
The firm produces at MR=MC or the closest lower MC
Q=7 units
Profit=TR-TC
TR=7*45=315
TC=373
Profit=315-373
=-58
The profit is -$58
c)
Q=8 units
Profit=TR-TC
=45*8-424
=-64
The profit is -$64
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