Assume a single firm in a purely competitive industry has variable costs as indi
ID: 1149676 • Letter: A
Question
Assume a single firm in a purely competitive industry has variable costs as indicated in the following table in column. Complete the table and answer the questions.
(a) At a product price of $52, will this firm produce in the short run? Explain. What will its profit or lossbe?
(b) At a product price of $28, will this firm produce in the short run? Explain. What will its profit or loss be?
(c) At a product price of $22, will this firm produce in the short run? Explain. What will its profit or loss be?
(d) Complete the following short-run supply schedule for this firm.
Assume there are 500 identical firms in this industry, that they have identical cost data as the firm above, and that the industry demand schedule is as follows:
(e) What will the equilibrium price be?
(f) What will the equilibrium output for each firm be?
(g) What will profit or loss be per unit?
(h) What will profit or loss be per firm?
Total Product Total Var. Total Cost AFC AVC ATC MC 0 $0 $40 1 55 2 75 3 90 4 110 5 135 6 170 7 220 8 290Explanation / Answer
A.
At a price of $52, Firm will produce in the short run.
Firm will produce 7 units as at this level the MC is $50.
Net profit = 7*52 – 260 = $104
B.
At a price of $28, variable cost is $27. So firm will operate in the short run. Firm will produce in the short run.
Firm will produce 5 units as at this level the MC is $25.
Net profit = 5*28 – 175 = -$35
There is a loss of $35. Since the price is $28 and variable cost is $27, so firm will operate in the short run.
C.
At price of $22, firm will not operate in the short run as it is lower than the average variable cost at every level of output. So, firm will shut down.
D.
Pl. repost other unaswered questions for their proper answers.
Total Product Total Var. Total Cost AFC AVC ATC MC 0 0 40 1 55 95 40 55 95.00 55 2 75 115 20 37.5 57.50 20 3 90 130 13.33 30 43.33 15 4 110 150 10.00 27.5 37.50 20 5 135 175 8.00 27 35.00 25 6 170 210 6.67 28.33 35.00 35 7 220 260 5.71 31.43 37.14 50 8 290 330 5.00 36.25 41.25 70Related Questions
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