Homework Answers
Q3
Answer
a)
fixed costs are the same at all level of output
Q=300, ATC=6, and AVC=4.5 from the graph
Total fixed cost =(ATC-AVC)*Q
=(6-4.5)*300
=$450
=========
b)
P=$10 and Q=100
ATC=$ 10, MC=$2
the firm makes zero economic profit as P=ATC
Economic profit=(P-ATC)*Q=(10-10)*100=0
=======
c)
P=$10
the firm produces at MC=P
where
Q=300 units
ATC=6
P>ATC so the firm makes profits
Economic profit =(P-ATC)*Q
=(10-6)*300
=$1200
=======
d)
A firm produces in the short run at P=MC if the P>Min(AVC)
the minimum AVC is $4.3 (approximately)
so the firm stops producing at a price below 4.3.
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