Assume the perfectly competitive market, and the market price of each product is

Question

Assume the perfectly competitive market, and the market price of each product is $40.

1.How many product should you produce?

2.what is your total revenue?

3.what is the amount of the loss?

4.why should you still running the business instead of shut down?

pllldet. H sts are given in the following table. Output per Week Marginal Cost (MC) (S) Total Cost Average Variable Average Total Cost (AVC) () Cost (ATC) (s) (TC) ($) 0 100 150 175 190 210 240 280 330 390 460 540 50.00 37.50 30.00 27.50 28.00 30.00 32.86 36.25 40.00 44.00 150.00 87.50 63.33 52.50 48.00 46.67 47.14 48.75 51.11 54.00 50.00 25.00 15.00 20.00 30.00 40.00 50.00 60.00 4 5 6 7 8 70.00 10 80.00

Explanation / Answer

1. A perfectly competitive firm maximizes profit when the MR i.e. price is equal to MC. MR is $40. MC becomes $40 when 6 units are produced in a week. So, I should produce 6 units.

2. Total revenue = price * units = $40 * 6 = $240.

3. Loss = total cost - total revenue = $280 - $240 = $40

4. A firm should run its businesses as long as the total revenue is higher than the total variable cost. In this case, total revenue = $240 and total variable cost = $30 * 6 = $180. Therefore, total revenue is higher than the total variable cost. This means that even though the firm is incurring a loss, it is recovering some amount of its fixed cost (in addition to its variable cost), which will make the businesses profitable in the long-run when the entire fixed cost is recovered.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.