suming that the cost of data in the table below is for a purely competitive prod
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Question
suming that the cost of data in the table below is for a purely competitive producer.Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost
1 $60.00 $45.00 $105.00 $45
2 30.00 42.50 72.50 40
3 20.00 40.00 60.00 35
4 15.00 37.50 52.50 30
5 12.00 37.00 49.00 35
6 10.00 37.50 47.50 40
7 8.57 38.57 47.14 45
8 7.50 40.63 48.13 55
9 6.67 43.33 50.00 65
10 6.00 46.50 52.50 75
a. At the Product Price of $56, will this firm produce in the short run? It will produce in a short run because you first have to find at what point does MC get closest to, but not over $56. That is at 8 units of out put, which is $48.13, so if it costs 48.13 to make a unit and we sell it for $56.00 then you make 7.87. If it is preferable to produce, what will be the profit-maximizing output? The maximizing profit will be $62.96. What economic profit or loss will the firm realize per unit of output? The way to find this understands economic profit is business profit minus costs so it would be 62.96 minus 48.13. Which would give you a profit of $14.83 per unit of output.
b. Answer the questions of 4a assuming product price is $41. With $41 in place of $56, its costs us $47.50 and we sell it for $41. This equals out to a negative of $6.50. This would not produce in the short run. The loss minimizing would be a negative $6.50. The economic loss per unit would be a -$39 because you take what it costs per unit -$6.50 times the number of units, which are 6. To find the economic loss per unit you take loss minus cost which is a lost of $8 per unit.
c. Answer the questions of 4a assuming product price is $32. With $32 in place of $56, its costs us $52.50 and we sell it for $30. This does not produce in the short run. The loss-minimizing outcome would be a loss of $22.50. The economic loss would be if you take the loss of $22.50 times units of 4 would be $60. Then minus that from the cost of $52.50. This equals out to a loss of $7.50 per unit.
d. In the table below, complete the short-run supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3).
Price Quantity Supplied Single Firm Profit or Loss Quantity Supplied 1500 Firms
$26
32
38
41
46
56
66
e. Now Assuming that there are 1500 identical firms in this competitive industry, that there are 1500 firms, each of which has the cost data show in the table, Complete the supply schedule in column 4.
f. Supposing the market demand data for the product is as follows.
Price Total Quantity Demanded
$26 17,000
32 15,000
38 13,500
41 12,000
46 10,500
56 9,500
66 8,000
What will be the equilibrium price? What will be the equilibrium output for the industry? For Each firm? What will profit or loss is per unit? Per Firm? Will this industry expand or contract in the long run?
Explanation / Answer
(a) Yes, $56 exceeds AVC (and ATC) at the profit-maximizing output. Using the MR = MC rule it will produce 8 units. Profits per unit = $7.87 (= $56 - $48.13); total profit = $62.96. (b) Yes, $41 exceeds AVC at the loss—minimizing output. Using the MR = MC rule it will produce 6 units. Loss per unit or output is $6.50 (= $41 - $47.50). Total loss = $39 (= 6 x $6.50), which is less than its total fixed cost of $60. (c) No, because $32 is always less than AVC. If it did produce according to the MR = MC rule, its output would be 4—found by expanding output until MR no longer exceeds MC. By producing 4 units, it would lose $82 [= 4 ($32 - $52.50)]. By not producing, it would lose only its total fixed cost of $60. (d) Column (2) data, top to bottom: 0; 0; 5; 6; 7; 8; 9, Column (3) data, top to bottom in dollars: -60; -60; -55; -39; -8; +63; +144. (e) The firm will not produce if P AVC, the firm will produce in the short run at the quantity where P (= MR) is equal to its increasing MC. Therefore, the MC curve above the AVC curve is the firm’s short-run supply curve, it shows the quantity of output the firm will supply at each price level. See Figure 21.6 for a graphical illustration. (f) Column (4) data, top to bottom: 0; 0; 7,500; 9,000; 10,500; 12,000; 13,500. (g) Equilibrium price = $46; equilibrium output = 10,500. Each firm will produce 7 units. Loss per unit = $1.14, or $8 per firm.Related Questions
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