Complete the following table for a perfectly competitive firm Instructions: Ente
ID: 1153802 • Letter: C
Question
Complete the following table for a perfectly competitive firm Instructions: Enter your responses rounded to two decimal places Output Total Cost Marginal Cost Average Total Cost Average Variable Cost $100 110 130 170 10 15 20 25 30 35 290 380 490 Instructions: Enter your response as a whole number. Indicate a negative response with a -) negative sign. (a) If the price is $10, how much output will the firm supply? units (b) How much profit or loss will it make? (c) At what price will the firm shut down? Click to select) vExplanation / Answer
Total Cost: Total cost is the total expensed incurred in the production of a given amount of output. It is the sum total of total fixed cost and total variable cost. TC=TFC+TVC
Marginal Cost: Marginal cost is the change in total cost when an additional unit of output is produced. Suppose the total cost of producing 5 units of a commodity is $125 and for 6 units is it is $180. The marginal cost is the cost of 6th unit. (180-135=45)
Average Total Cost: Average total cost is the total cost per unit of output. It is obtained by dividing the total cost by the number of output produced.
Average variable cost: Average variable cost is the variable cost per unit of output. It is obtained by dividing the total variable cost by the number of output produced. AVC =TVC
Q
Output
Total cost
Marginal cost
Average Total cost
Average variable cost.
0
100
-
-
-
5
110
10
22
11
10
130
20
13
6.5
15
170
40
11.3
5.6
20
220
50
11
5.5
25
290
70
11.6
5.8
30
380
90
12.6
6.3
35
490
110
14
7
In the initial stage of production the average total cost is high because the fixed cost is high. But as the output expands average total cost decrease as the fixed cost is distributed among the output. At a point the average total cost reaches to the minimum. In the table when the output is 20 the average total cost reaches to its lowest minimum. After the level of output 20 the average total cost increase.
The average variable cost diminishes as the output increase due to the operation of increasing returns to a factor. The average variable cost increases after a point due to the decreasing returns to a factor.
a. If the price level is $10 the firm will produce 20 units, here the total cost of producing 20 units is $220. The total revenue from the sale of 20 units is $200.
b. Here the firm incurs a loss equal to $20.
Even if the market price is below the average cost the firm will continue to produce in order to cover its fixed cost. In short run the period is not enough to the existing firm to quit the industry. If the firm stops the production, it has to suffer the full amount of fixed cost. If it continues to produce it can cover the fixed cost and some extent of variable cost.
c. The shut down point is the point where the average variable cost exceed the price the firm will shutdown. In other words in the given example if the price fall below $5.5 the firm will shutdown. The output at which the price is equal to average variable cost is the shutdown point. If the firm increases its output beyond that level the firm will lose its average cost too.
Output
Total cost
Marginal cost
Average Total cost
Average variable cost.
0
100
-
-
-
5
110
10
22
11
10
130
20
13
6.5
15
170
40
11.3
5.6
20
220
50
11
5.5
25
290
70
11.6
5.8
30
380
90
12.6
6.3
35
490
110
14
7