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problem: The costs below are for one of many, identical firms in a competitive market.

Output

Total

Total

 

Fixed

Variable

 

Cost

Cost

0

50

0

1

50

50

2

50

78

3

50

98

4

50

112

5

50

130

6

50

150

7

50

175

8

50

204

9

50

242

10

50

300

11

50

385

[A]   At what level of output is the 'shut down' point?

[B]   At what level of output would the firms be profit maximizing if the market determined price were USD 25 per unit?

[C]   Would the firms enjoy an economic profit or suffer an economic loss at the profit maximizing level of output for a price of $25 per unit? If so, what is the size [in dollars] of the profit or loss?

[D]    Given the result in part c. above, describe the process that would occur in this market to bring it to a stable, long-run position.

[E]    Would the firms enjoy an economic profit or suffer an economic loss at the profit maximizing level of output for a price of $38 per unit? If so, what is the size [in dollars] of the profit or loss?

[F]   Compute Average Fixed Cost, Average Variable Cost, Average Total Cost, and Marginal Cost.

[G]   Plot Average Fixed Cost, Average Variable Cost, Average Total Cost, and Marginal Cost.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M916528

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