Question

Assume that the cost data in the following table are for a purely competitive producer: Total Product 0 Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 2 3 4 5 6 7 $ 60.00 30.00 20.00 15.00 12.00 10.00 8.57 7.50 6.67 6.00 $ 45.00 42.50 40.00 37.50 37.00 37.50 38.57 40.63 43.33 46.50 $ 105.00 72.50 60.00 52.50 49.00 47.50 47.14 48.13 50.00 52.50 $ 45.00 40.00 35.00 30.00 35.00 40.00 45.00 55.00 65.00 75.00 8 9 10 Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Select "Not applicable" and enter a value of "O" for output if the firm does not produce. Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Select "Not applicable" and enter a value of "O" for output if the firm does not produce. a. At a product price of $57.00 (i) Will this firm produce in the short run? Yes (ii) If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? (Click to select) output = 9 units per firm (iii) What economic profit or loss will the firm realize per unit of output? Profit per unit = $ 153 b. At a product price of $42.00 (1) Will this firm produce in the short run? Yes (ii) If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? Loss-minimizing output = 6 units per firm (iii) What economic profit or loss will the firm realize per unit of output? Loss per unit = $ 33 C. At a product price of $33.00 (i) Will this firm produce in the short run? No (ii) If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? Not applicable V output = o units per firm (iii) What economic profit or loss will the firm realize per unit of output?

Answer 1

The firm will produce in the short run at a price of $57.00 and $42.00, with the profit-maximizing or loss-minimizing outputs being 9 units and 6 units per firm, respectively. The economic profit or loss per unit will be $153 and $33, respectively. At a price of $33.00, the firm will not produce in the short run.

Step-by-step explanation:

At a product price of $57.00:

1. The firm will produce in the short run.
2. The profit-maximizing or loss-minimizing output is 9 units per firm.
3. The economic profit per unit will be $153.

At a product price of $42.00:

1. The firm will produce in the short run.
2. The profit-maximizing or loss-minimizing output is 6 units per firm.
3. The economic loss per unit will be $33.

At a product price of $33.00:

1. The firm will not produce in the short run.
2. The profit-maximizing or loss-minimizing output is not applicable.
3. The economic profit/loss per unit of output is not applicable.

Answer 2

The firm will realize an economic profit of $123 per unit at the profit-maximizing output of 9 units.

How to solve

Short-Run Decision for a Purely Competitive Producer

a) Product Price = $57.00

(i) Will the firm produce?

Yes, the firm will produce in the short run. The firm's marginal cost (MC) is below the price ($57) at all output levels. As long as the price exceeds MC, the firm will incur a smaller loss by producing than by shutting down.

(ii) Profit-maximizing or loss-minimizing output:

Profit is maximized where MC = MR. Since the firm is in a perfectly competitive market, MR = Price = $57.

From the table, MC = $57 at an output of 9 units. Therefore, the firm's profit-maximizing output is 9 units per firm.

(iii) Economic profit or loss per unit:

Economic profit = TR - TC

At an output of 9 units:

TR = Price * Quantity = $57 * 9 = $513

TC = AVC * Quantity = $43.33 * 9 = $390

Economic profit = $513 - $390 = $123

Therefore, the firm will realize an economic profit of $123 per unit at the profit-maximizing output of 9 units.