1. What number of units will the firm choose to sell? Why? 2. What price will be

Question

1. What number of units will the firm choose to sell? Why?

2. What price will be charged? Why?

3. What will profit be?

4. Is the market in long-run equilibrium?

5. What is the average cost per item sold?

Suits sold (per hour) Price TC TR AR MR AC MC 1 $31.50 $70.00 $31.50 $31.50 $70.00 2 $28.50 $80.00 $57.00 $28.50 $25.50 $40.00 $10.00 3 $25.50 $85.00 $76.50 $25.50 $19.50 $28.33 $5.00 4 $22.50 $90.00 $90.00 $22.50 $13.50 $22.50 $5.00 5 $19.50 $100.00 $97.50 $19.50 $7.50 $20.00 $10.00 6 $16.50 $115.00 $99.00 $16.50 $1.50 $19.17 $15.00 7 $13.50 $136.00 $94.50 $13.50 -$4.50 $19.43 $21.00 8 $10.50 $164.00 $84.00 $10.50 -$10.50 $20.50 $28.00 9 $7.50 $200.00 $67.50 $7.50 -$16.50 $22.22 $36.00 10 $4.50 $245.00 $45.00 $4.50 -$22.50 $24.50 $45.00

Explanation / Answer

1. The firm's profit maximising point is where MR is greater than or equal to MC and difference between MR and MC is minimum.

This happens at Q= 4

Firm should sell 4 units becuase at this level profit is maximised.

2. Price that will be charged will correspond to the profit maximising quantity. P= 22.50

3. Profit = TR-TC = 90-90= 0

4. Yes the market is in long run equilibrium as firm is earning 0 economic profit.

5. Average cost per item sold is 22.50

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