Cost Function Practice Worksheet and Decision Making in the Purely Competitive M
ID: 1108169 • Letter: C
Question
Cost Function Practice Worksheet and Decision Making in the Purely Competitive Market 2. Assume the data from question 1 represents a purely competitive firm a. Determine the units produced by this firm if P-$2.00. b. Calculate the firm's profit or loss if P=$2.00. c. Determine the units produced by this firm if P-$3.25. d. Calculate the firm's profit or loss if P=$3.25. e. Determine the units produced by this firm if P=$6.50. f. Calculate the firm's profit or loss if P=$6.50. g. What happens in the long-run at each price if nothing changes?Explanation / Answer
Answer
a)
P=2
Q=0
because the Average variable cost is geater than price
so the firm will shutdown in short run and do not produce to minimize losses
b)
The profit at shut down is a loss equal to fixed cost
loss=$15
c)
P=3.25
Q=11
The firm produce at MC=P
it is at Q=11
d)
Profit=TR-TC
=11*3.25-43.25
=-7.5
The firm make loss of $-7.5