Ql(ch12). Assume a single firm in a purely competitive industry has variable cos

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 Total Total product var. cost costAFC AVC ATC MC S 40$ 75 90 110 135 170 220 290 a. 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) b. At the market price of S22, will this firm produce in the short run? Explain. How much will be its maximum profit or minimum loss? (2pts)

Explanation / Answer

Ans : a ) At the market price of $ 50 , the firm will produce in the short run. Its maximum profit will be $ 90 .

Explanation :

Profit maximization condition ; MC = MR

TR = price * quantity

This is shown in the following table

Ans : b ) At the market price of $ 22, the firm will not produce in the short run because it is unable to even recover AVC . In this case AVC is more than the price at each level of production. So the firm will incurred losses.This is shown in the following table.

TR = price * quantity

Total
Product Total Variable cost ( $ ) Total Cost ( $ ) AFC ( $ ) AVC ($) ATC ($) MC ( $ ) TR ( $ ) MR ( $ ) Profit ( $ ) 0 0 40 0 0 0 0 0 0 0 1 55 95 40.00 55.00 95.00 95 50 50 -45 2 75 115 20.00 37.50 57.50 20 100 50 -15 3 90 130 13.33 30.00 43.33 15 150 50 20 4 110 150 10.00 27.50 37.50 20 200 50 50 5 135 175 8.00 27.00 35.00 25 250 50 75 6 170 210 6.67 28.33 35.00 35 300 50 90 7 220 260 5.71 31.43 37.14 50 350 50 90 8 290 330 5.00 36.25 41.25 70 400 50 70

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