Ql(ch12). Assume a single firm in a purely competitive industry has variable cos
ID: 1109099 • Letter: Q
Question
Ql(ch12). Assume a single firm in a purely competitive industry has variable costs as indicated in the following table in column 2. Complete the table (2pts) and answer the questions. Total roduct var. cost Total Total cost AFC AVC ATC MC 40 S 75 90 110 135 170 220 290 At the market price of $50, will this firm produce in the short run? Explain. How much will be its maximum profit or minimum loss? (2pts) a. b. At the market price of $22, will this firm produce in the short run? Explain. How much will be its maximum profit or minimum loss? (2pts)Explanation / Answer
Use the formulas below
a) When market price is 50 in a competitive market, MC is 50 when Q = 7. Hence it produces according to P = MC = 50 and both AVC and ATC are less than 50 at this price so firm will produce. Profit = TR - TC = 50*7 - 260 = $90
b) When price is 22, MC is not exactly 22 but is 20 so firm produces where MC = 20 and this is Q = 2. Now at this level, AVC is not minimized and so production would not take place. Firm will not produce anything because shut down price ($27) is higher than current market price.
Total product TVC TC FC MC AVC ATC AFC 0 0 40.00 40.00 1 55 95.00 40.00 55.00 55.00 95.00 40.00 2 75 115.00 40.00 20.00 37.50 57.50 20.00 3 90 130.00 40.00 15.00 30.00 43.33 13.33 4 110 150.00 40.00 20.00 27.50 37.50 10.00 5 135 175.00 40.00 25.00 27.00 35.00 8.00 6 170 210.00 40.00 35.00 28.33 35.00 6.67 7 220 260.00 40.00 50.00 31.43 37.14 5.71 8 290 330.00 40.00 70.00 36.25 41.25 5.00