Question

Assume a certain firm is producing Q = 2,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. Marginal cost is constant for this firm. The firm sells its output for $30 per unit. At Q = 2,000, the firm's profits equal

Answer 1

If the firm is producing Q = 2,000 units of output and sells its output for $30 per unit, its total revenue is $30 x 2,000 = $60,000.

Since the firm’s marginal cost is constant at $20 per unit, its total variable cost at Q = 2,000 is $20 x 2,000 = $40,000.

The firm’s average total cost at Q = 1,000 is $25 per unit. Since average total cost equals total cost divided by quantity, the firm’s total cost at Q = 1,000 is $25 x 1,000 = $25,000. Since the firm’s total variable cost at Q = 1,000 is $20 x 1,000 = $20,000, its total fixed cost is $25,000 - $20,000 = $5,000.

At Q = 2,000, the firm’s total cost is its total fixed cost plus its total variable cost: $5,000 + $40,000 = $45,000.

Therefore, at Q = 2,000 the firm’s profits equal its total revenue minus its total cost: $60,000 - $45,000 = $15,000.

Step-by-step explanation: