Question

QUESTION: Complete the table and answer the following questions. The price for this perfectly competitive firm is $150.4 1 QTY FC vce AVC ATC MC MR AFC - 0 1 1 TC 500 650 700- 760 840 950 1 te le 1 1 2 2 1 10904 1 1 1 12704 1500 1790- 21502 1 1 2 2 2 2 a. Should this firm produce? b. If so, how many units should it produce?" C. What is the economic profit or economic loss?

Answer 1

Q FC 0 VC 500 500 500 2 500 60 4 500 500 500 T C 0 150 200 260 340 450 590 770 1000 1290 1650 AFC AVC ATC MC MREP 500 ... .... .... 150 650 500 150 650 150 150 700 250 100 350 50 150 760 166.6667 86.66667 253.3333 150 840 125 85 210 80 150 950 100 190 1090 83.33333 98.33333 181.6667 150 1270 71.42857 110 181.4286 180 1500 62.5 125 187.5 230 150 1790 55.55556 143.3333 198.8889 290 2150 50 165 215 3 60 150 90 110 150 140 150 500 500 150 500 500 10

a.

Since TC=TFC+TVC

ATC=TC/Q

AVC=TC/Q

AFC=TFC/Q

MC=TCn-TCn-1

The profit-maximizing condition of perfectly competitive firm is

P=MC

Or Price should be greater than MC

Hence profit maximizing or loss minimizing quantity is $1 units at price of $150.

Hence firm should produce in short-run for minimizing loss.\b.

b.

Firm should produce 1 units.

c.

Economic loss=(ATC-P)Q

=(650-150)*1

=$500