For each firm? units. Instructions: Round your answers to 2 decimal places. Ente

Question

For each firm?    units.           

Instructions: Round your answers to 2 decimal places. Enter positive values for profit or loss.

What will profit or loss be per unit?   (Click to select)  Loss  Profit  per unit = $  .     

Per firm? $  .     

Will this industry expand or contract in the long run?   (Click to select)  Expand  Contract  .

Assume that the following cost data are for a purely competitive producer Average Total Marginal Cost Total Product Average Fixed Average Cost Variable Cost Cost 0.00 $ 45.00 S 42.50$ 40.00$ 37.50$ 37.00 $ 37.50$ 38.57 S 40.63 S 43.33 S 46.50$ 0.00 05.00 S 72.50$ 60.00 $ 52.50$ 49.00$ 47.50$ 47.14S$ 48.13 $ 50.00 $ 52.50$ na na 60.00 $ 30.00 $ 20.00$ 15.00 $ 12.00 $ 10.00 $ 8.57S 7.50$ 6.67 S 6.00 $ 45.00 40.00 35.00 30.00 35.00 40.00 45.00 55.00 65.00 75.00 3 4 10 Answer the questions in the first column in the table below for the price listed at the top of each of the other three columns

Explanation / Answer

From the table we see that MC is the supply schedule that begins with the minimum of AVC which is 37. Hence below a price of $37 no firm will supply any unit. This draws the supply schedule for one firm. For 1500 firms, just multiply the schedule for a single firm by 1500.

For profit, use (P - AC)*Q and find that for a price higher than $47, there are profits, otherwise not.

Demand and supply are equal to each other at 10500 units when the price is $47 and marginal cost is $45.

Equilibrium price = $47

Equilibrium quantity of industry = 10500.

Quantity by 1 firm = 7 units.

Loss per unit = (P - ATC) = 47 - 47.14 = 0.14

Loss per firm = 0.14 x 7 = 0.98

This industry will contract in long run as there are losses in short run.

Price Qs by single firm Profit/loss (P - AC)*Q Qs by 1500 firms Qd 22 0 -60 0 19000 27 0 -60 0 17000 32 0 -60 0 15000 37 5 -60 7500 13500 42 6 -33 9000 12000 47 7 -0.98 10500 10500 57 8 70.96 12000 9500

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