Question

In: Economics

Perfectly competitive industry model assume the following info Price: $2 Q of output: 1800 Total revenue:...

Perfectly competitive industry model assume the following info

Price: $2
Q of output: 1800
Total revenue: ?
Total cost: 15700
Total fixed cost:?
Total variable cost: 7200
Average total cost: minimum
Average variable cost:?
MC:?

Answer the following questions

1.) total revenue:
2.) total fixed costs
3.) average variable cost
4.) marginal cost
5.) profit or loss?
6.) what should a consultant advise? (Answer a, b, c, d or e)
-a,) frisk should do nothing it is already maximizing profits or minimize losses

B.) firm should reduce quantity of output

C.) firm should increase quantity of output

D.) firm should shutdown operations

E.) the given number set is inconsistent



Solutions

Expert Solution

1.

Total revenue = Price × Quantity

                        = $2 × 1,800

                        = $3,600 (Answer)

2.

Total fixed cost = Total cost – Total variable cost

                        = 15700 – 7200

                        = $8,500 (Answer)

3.

Average variable cost = Total variable cost / Quantity

                                    = 7200 / 1800

                                    = $4 (Answer)

4.

Total cost for (Q – 1) should be calculated first.

(Q – 1) = 1800 – 1 = 1799 units

Total cost for 1799 units = Total fixed cost + Total variable cost

                                         = 8,500 + ($4 × 1799)

                                         = 8500 + 7,196

                                         = $15,696

Marginal cost = Total cost for 1800 units – Total cost for 1799 units

                        = 15700 – 15696

                        = $4 (Answer)

5.

Answer: D

The price $2 doesn’t cover the average variable cost $4; therefore, this is the time to shutdown.


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