Question

Reff corp is a firm with total revenue of $1,000, marginal cost of $5, and average variable cost of $4. both the output and the input markets are perfectly competitive, and reff corp is currently in long-run equilibrium. reff corp’s output and total fixed cost of production must be equal to which of the following?

A. Output, 250. Fixed Cost, $800
B. Output, 250. Fixed Cost, $400
C. Output, 200. Fixed Cost, $200
D. Output, 200. Fixed Cost, $400
E. Output, 200. Fixed Cost, $800

Answer 1

Reff Corp's output in the given scenario is 200 units, calculated by dividing total revenue by marginal cost. The total fixed cost is $200, found by subtracting the total variable cost from total revenue.

Step-by-step explanation:

The question asks for the determination of Reff Corp’s output and total fixed cost given that it is in long-run equilibrium in a perfectly competitive market. As we know from economic principles, firms in long-run equilibrium make zero economic profit, meaning total revenue equals total cost. Since marginal cost equals average variable cost at the minimum of average total cost in the long run, we can calculate the firm's output by dividing total revenue by marginal cost. The fixed cost can then be found by subtracting the total variable cost from total revenue.

In this case, the total revenue is $1,000 and the marginal cost (MC) is equal to the average variable cost (AVC) which is $5. To find the output, we would divide total revenue by MC ($1000/$5), which yields an output of 200 units. To find the total fixed cost (TFC), we multiply the output by the AVC ($200 * $4 = $800) and subtract this from the total revenue ($1000 - $800). So, the fixed cost is $200.

Therefore, the correct answer is Output, 200. Fixed Cost, $200.

Answer 2

The correct answer to the student's question is that Reff Corp.'s output is 200 units, and the total fixed cost is $200. This is determined by the conditions of the firm being in long-run equilibrium and the relationships between total revenue, marginal cost, average variable cost, and total fixed cost.

Step-by-step explanation:

The student is asking how to calculate the output and total fixed cost of production for Reff Corp., which is a perfectly competitive firm in long-run equilibrium. To determine the correct answer, we need to consider the information given that Reff Corp. has a total revenue of $1,000 and is operating where marginal cost (MC) equals marginal revenue (MR). The average variable cost (AVC) is $4, and since the company is in long-run equilibrium, the price is equal to the average cost (AC), which includes average variable cost and average fixed cost (AFC).

Given that the marginal cost is $5 per unit, this means the firm also sells each unit at $5 in long-run equilibrium (since P = MR = MC). If we divide the total revenue by the price per unit, we get the output.

Thus, the output is $1,000 / $5 = 200 units. To find the total fixed cost (TFC), we calculate the total cost (TC) which is the sum of total variable cost (TVC) and TFC. Since TVC can be found by multiplying the output by the AVC (200 units × $4), we get $800. Subtracting TVC from TR gives us the TFC: $1,000 - $800 = $200.

Therefore, the correct answer is: Output, 200. Fixed Cost, $200.