Answer the next question on the basis of the following cost data for a purely co

Question

Answer the next question on the basis of the following cost data for a purely competitive seller:
Product TFC   TVC
0          $150    $0
1           150     70
2          150    120
3          150    150
4          150    220
5          150    300
6          150    390
Refer to the above data. If the product price is $95 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations. (Points : 10)

Explanation / Answer

If the product is $95 at its optimal output, the firm wil realize the following: Break even is when variable cost evens with revenue Total product sold at $95 TFC TVC Total cost Breakeven Net Profit/ (Loss) 0 0 150 0 150 0 -150 1 95 150 70 220 25 -125 2 190 150 120 270 70 -80 3 285 150 150 300 135 -15 4 380 150 220 370 160 10 5 475 150 300 450 175 25 6 570 150 390 540 180 30 When P = $95, then MR = $95, and we want to produce as long as the rising MC is less than $95. So we would produce 5 units, Total Revenue would be 5 x $95 = $475. Total Costs = $50 + $300 = $350. So there would be a profit of TR - TC = $475 - $350 = $125.

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