Please show your work. A purely competitive firm finds that the market price for
ID: 1095426 • Letter: P
Question
Please show your work.
A purely competitive firm finds that the market price for its product is $30.00. It has a fixed cost of $100.00 and a variable cost of $17.50 per unit for the first 50 units and then $35.00 per unit for all successive units. Instructions: Round your answers to 2 decimal places. a. Does price equal or exceed average variable cost for the first 50 units? Yes What is the average variable cost for the first 50 units? $ b. Does price equal or exceed average variable cost for the first 100 units? Yes What is the average variable cost for the first 100 units? $ c. What is the marginal cost per unit for the first 50 units? $ per unit What is the marginal cost for units 51 and higher? $ 35 per unit d. For each of the first 50 units, does MR exceed MC? Yes What about for units 51 and higher? No e. What output level will yield the largest possible profit for this purely competitive firm? 50 units.Explanation / Answer
a) Price exceeds average variable cost for first 50 units by 12.5 (30-17.5)
AVC=MC=17.5
b) For first 100 units price exceeds average variable cost by 3.75 (30-26.25)
AVC=(17.5*50+35*50)/100
AVC=26.25
c) Marginal cost is equal to average variable cost always.For first 50 units marginal cost is 17.5
Marginal cost for units above 51 is 35.
d) MR=Price, MC=AVC. From point a we can say that mR exceeds MC for first 50 units YES. But after 51 price is less than MC. The answer is NO
e) The largest profit will be when P=MC or till P>MC. P<MC means losses.
The optimum output level is 50