Question

a. At a product price of $56, will this firm produce in the short run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? What economic profit or loss will the firm realize per unit of output? b. Answer the questions of 4a assuming product price is $41. c. Answer the questions of 4a assuming product price is $32. d. In the table below, complete the short-run supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3).

Answer 1

In the short run, a firm will produce if the price covers variable costs. The profit-maximizing output is where price equals marginal cost and the economic profit per unit is the difference between price and average total cost.

Step-by-step explanation:

In the short run, a firm will produce as long as the price of the product covers the variable costs. At a price of $56, the firm will likely produce. To find the profit-maximizing output, the firm should compare the price with the average variable cost (AVC). If the price is greater than the AVC, the firm will produce at the level where the price equals the marginal cost (MC) since this maximizes profit. The economic profit per unit of output is the difference between the price and the average total cost (ATC).

For part (a), let's assume that the profit-maximizing output is 60 units. The average total cost is $44, so the economic profit per unit of output is $56 - $44 = $12.

For part (b), assuming a price of $41, the profit-maximizing output is 50 units. The average total cost is $42, resulting in an economic loss of $41 - $42 = -$1 per unit.

For part (c), assuming a price of $32, the firm will not produce since the price is below the average variable cost.

Answer 2

A firm should continue producing in the short run if the product price covers the average variable cost. At $56, it is likely to produce and make a profit, whereas at $41, it might produce but incur losses, and at $32, it may not produce if this price does not cover average variable costs. Precise output and profit or loss calculations require more detailed cost data.

Step-by-step explanation:

To determine whether the firm should continue producing in the short run at different product prices, we need to examine if the price covers the average variable cost (AVC) at the profit-maximizing output level. If the price is enough to cover AVC, the firm should produce in the short run, even if that means operating at a loss, because it can cover some of its fixed costs in the process.

Assuming a price of $56, and referencing the provided example where the average cost at an output of 40 is $14.50 and the firm makes economic profits, it is likely that the firm will continue to produce since the price exceeds both average cost and most likely the AVC. The profit-maximizing or loss-minimizing output would depend on the firm's total cost and total revenue curves. If, as in the example, the price is above the average cost, the firm will make a profit per unit which is the difference between the price and the average cost.

At a price of $41, whether the firm should produce will depend on the comparison between this price and the AVC. If $41 covers AVC but is below the average total cost, the firm will produce, minimizing losses, but will incur a loss per unit equal to the difference between the price and the average total cost.

When the price falls to $32, if this price is less than AVC, the firm will not produce as it would not cover the variable costs of production. However, if $32 still covers AVC, the firm might continue to produce, minimizing losses even though it's taking a loss per unit equal to the price minus the average total cost.

Delete For the precise profit or loss per unit and the exact output level, detailed cost information would be needed, but the examples given provide a general guideline for decision-making. The firm's short-run supply schedule and associated profits or losses would be based on the profit-maximizing output levels at various prices, which cannot be determined without detailed cost data.