Question 5 125 Marksl a) Kap\'s J is the owner of a fast food restaurant in Kitw

Question

Question 5 125 Marksl a) Kap's J is the owner of a fast food restaurant in Kitwe. The average variable cost is $10 and the average fixed cost is $6. Mr. J's shop is under a perfectly competitive market. The price faced in the market is $8. i) Calculate the average total cost. ii How much profit/loss per unit is Mr. J able to make in this business? ISI ii) Would you advice Mr. J to quit the business in the short run? iv) Ifhe decides to quit, how much will he lose in the short run per unit of output. 121 How does this compare to the loss per unit if he continues in the business short run? v) When does the firm working under perfect competition decide to shut down its short run? b) Using well labelled diagrams, explain both the short run and the long run equilibrium for a 2] firm in a perfectly competitive market.

Explanation / Answer

AVC = $10

AFC = $6

P = $8

1.ATC = AVC +AFC = $10 +$6 = $16

2. Profit/Loss = P - ATC =$8 - $16 = $8 loss per unit

3. Yes, he should quit his business in the short run as considering the shut own condition:

AVC > P ($10 > $8)

4.Considering he produces n products, his loss is = n*8 for every unit he produes

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

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