Problem -
The table below shows the weekly marginal cost (MC) and average total cost (ATC) for Smitten, a perfectly competitive firm that produces children's mittens in a competitive market.
|
Smitten's Production Costs
|
|
Quantity (pairs of mittens)
|
MC (dollars)
|
ATC (dollars)
|
|
5
|
$1.60
|
$8.00
|
|
10
|
2.00
|
5.00
|
|
15
|
2.45
|
4.15
|
|
20
|
3.55
|
4.00
|
|
25
|
4.00
|
4.00
|
|
30
|
5.50
|
4.25
|
|
35
|
6.00
|
4.50
|
|
40
|
8.50
|
5.00
|
a. The market price of children's mittens is $6.00 per pair. How many pairs of children's mittens should Smitten produce per week to maximize its profits?
b. What is Smitten's average total cost at the profit-maximizing quantity of children's mittens?
c. What are Smitten's weekly profits if the market price is $6 per pair and the firm produces the profit-maximizing quantity of mittens?
d. What are Smitten's weekly profits if the market price is $5.50 per pair and the firm produces the profit-maximizing quantity of mittens?
e. At what price would Smitten earn a normal profit?