Question

Tunica sells widgets in a perfectly competitive market. Below are its short-run total variable costs at different output levels. The firm's fixed cost is $12. The market price for one widget is $14. units total variable cost 0 $0 1 $12 2 $25 3 $60 4 $120 5 $200 6 $300 what is the average total cost of the 6th unit? what is the first unit of output where diminishing marginal returns have begun?What profit or loss would Tunica earn at its profit maximum? Show your work.Would Tunica operate in the short run? Explain.Would Tunica stay in the market in the long run? Explain.

Answer 1

The average total cost of the 6th unit is $52. Diminishing marginal returns begin at the 3rd unit of output. Profit or loss can be determined by comparing total revenue and total cost. Tunica would operate in the short run, but whether it stays in the market in the long run depends on its profitability.

Step-by-step explanation:

In order to determine the average total cost of the 6th unit, we need to calculate the total cost and then divide it by the number of units. From the given table, the total cost of the 6th unit is $300. Since the firm's fixed cost is $12 and the 6th unit incurs a total cost of $300, the average total cost of the 6th unit can be calculated as:

Average Total Cost = (Fixed Cost + Total Variable Cost) / Number of Units

Average Total Cost = ($12 + $300) / 6 = $52

To find the first unit of output where diminishing marginal returns have begun, we can observe the total variable cost. In this case, diminishing marginal returns start at the 3rd unit of output because the total variable cost increases significantly from $25 to $60 between the 2nd and 3rd units.

Profit or loss can be determined by subtracting the total cost from the total revenue. To find the profit-maximizing output level, we need to compare the marginal revenue and marginal cost.

Tunica would operate in the short run because its total revenue exceeds its variable costs, allowing it to cover its variable costs and make a contribution towards its fixed costs.

Whether Tunica would stay in the market in the long run depends on its profitability. If it is earning economic profits in the short run, it would continue operating in the long run. However, if it is experiencing losses in the short run, it may need to exit the market in the long run.

Answer 2

The average total cost of the 6th unit is $33.33. Diminishing marginal returns begin at the 6th unit. At the profit maximum, Tunica would incur a loss of -$128. Tunica would operate in the short run but stay in the market in the long run.

To answer your questions:

1. The average total cost of the 6th unit can be calculated by dividing the total variable cost of the 6th unit by the quantity. In column B, the total variable cost for the 6th unit is $200, and the quantity is 6. So the average total cost of the 6th unit is $200/6 = $33.33.
2. Diminishing marginal returns occur when the additional output gained from each additional unit of input decreases. Looking at column B, we can see that the total variable cost increases by $40 from the 5th to the 6th unit. Therefore, the first unit of output where diminishing marginal returns have begun is the 6th unit.
3. To determine the profit or loss at the profit maximum, we need to compare the total revenue and total cost. In column B, the 6th unit has a total variable cost of $200. The market price is $14 per unit, so the total revenue for the 6th unit is $14 * 6 = $84. The total cost is the sum of the fixed cost ($12) and the total variable cost, which is $12 + $200 = $212. The profit at the profit maximum is the total revenue minus the total cost, which is $84 - $212 = -$128.
4. Tunica would operate in the short run because its total revenue ($84) is greater than its total variable cost ($200) at the profit-maximizing quantity. However, it would incur a loss of -$128 because its total cost ($212) is greater than its total revenue.
5. Tunica would stay in the market in the long run because its average variable cost is lower than the market price. With time, the firm can adjust its output and costs to potentially increase its profits or reduce its losses.

The complete question is here:

Tunica sells widgets in a perfectly competitive market. Below are its short-run total variable costs at different output levels. The firm's fixed cost is $12. The market price for one widget is $14.

Column A. Units

0

1

2

3

4

5

6

Column B. Total Variable Cost

$0

$12

$25

$60

$120

$200

$300

1. What is the average total cost of the 6th unit?

2. What is the first unit of output where diminishing marginal returns have begun?

3. What profit or loss would Tunica earn at its profit maximum? Show your work.

4. Would Tunica operate in the short run? Explain.

5. Would Tunica stay in the market in the long run? Explain.