George\'s Dorm Desks operates in a perfectly competitive market. George\'s facto

Question

George's Dorm Desks operates in a perfectly competitive market. George's factory is constrained in the short run. He can make, at most, 200 desks this month. His fixed costs are $100 for the month. The current price for each desk is $25. The graph below represents George's marginal and average total cost curves.

http://courses.aplia.com/problemsetassets/micro/Lemke_Perfect_Competition_II/george.gif

8.1. How many desks should George make this month?

A. 200
B. 70
C. 0
D. 20

8.2. How much profit will George earn during the month?
A. $5,000
B. $4,000
C. -$100
D. $1,000

Explanation / Answer

Since both cost curves are decreasing as production increases, then George should produce as much as possible. In this case A: 200 If he sells 200 units for $25, then he will have sales of $5,000, however the problem asks what will be the profit for the month. From the graph, we can see that at 200 units the average total cost (which includes the $100 fixed monthly expense) is at $20 per unit. So 200x20 = $4,000 for overall cost. Sales - Cost = Profit $5,000 - $4,000 = $1,000 so A: $1,000

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

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