Total Product (batches of cookies per day) Average Fixed Cost Average Variable C
ID: 1251882 • Letter: T
Question
Total Product
(batches of cookies
per day)
Average Fixed
Cost
Average Variable
Cost
(dollars per
Average Total
Cost
day)
Marginal Cost
1
84
51
135
1.5
37
2
42
44
86
32
2.5
29
3
28
39
67
28
3.5
27
4
21
36
57
30
4.5
32
5
16.8
35.2
52
35.2
5.5
40
6
14
36
50
50
6.5
57
7
12
39
51
70
7.5
83
8
10.5
44.5
55
The table shows some cost date for Lin's Fortune Cookies, Which operates in a perfectly competitive market.
a. At a price of $50 per batch of cookies, what quantity does Lin produce?____ What is the firm's economic profit?____ Do firms enter or exit the industry?____
b. At a price of $35.20 per batch of cookies, What quantity does Lin Produce?___
What is the firm's economic profit? Do firms enter or exit the industry?____
C. At a price of $70 per batch of cookies, what quantity does Lin produce?____ What
is the firm's economic profit?_____ DO firms enter or exit the industry?____
Total Product
(batches of cookies
per day)
Average Fixed
Cost
Average Variable
Cost
(dollars per
Average Total
Cost
day)
Marginal Cost
1
84
51
135
1.5
37
2
42
44
86
32
2.5
29
3
28
39
67
28
3.5
27
4
21
36
57
30
4.5
32
5
16.8
35.2
52
35.2
5.5
40
6
14
36
50
50
6.5
57
7
12
39
51
70
7.5
83
8
10.5
44.5
55
Explanation / Answer
The table shows some cost date for Lin's Fortune Cookies, Which operates in a perfectly competitive market.
a. At a price of $50 per batch of cookies, what quantity does Lin produce? approx. six (6) batches (match $50 with marginal cost)
What is the firm's economic profit?____ ECONOMIC PROFIT = TOTAL REVENUE - TOTAL COSTS =
TOTAL REVENUE - (50 x 6) = TOTAL REVENUE - $300.
Since this is a PERFECTLY COMPETITIVE firm, it operates best when MARGINAL COST = AVG. VARIABLE COST. THIS HAPPENS AT 6 BATCHES, WHICH IS THE # OF BATCHES IN QUESTION.
SO THE FIRM IS OPERATING AT ITS IDEAL POINT.
Do firms enter or exit the industry? ENTER!!
b. At a price of $35.20 per batch of cookies, What quantity does Lin Produce?___ FIVE (5)
What is the firm's economic profit? Do firms enter or exit the industry? LOSS of $52 (difference in cost from the ideal situation of six batches)
C. At a price of $70 per batch of cookies, what quantity does Lin produce? Match up $70 with MC to get seven batches. What
is the firm's economic profit? The economic LOSS is $55 x 2 = $110 (difference in cost from the ideal situation of six batches) DO firms enter or exit the industry? LOSSES = LEAVE (EXIT!!)