Question

In: Economics

The table below shows the total cost and marginal cost for Chrissy's Costumes, a perfectly competitive...

The table below shows the total cost and marginal cost for Chrissy's Costumes, a perfectly competitive firm producing different quantities of children's costumes. The market price of costumes is $15.00.

     Chrissy's Costs of Production

Quantity (costumes) Total Cost (dollars) Marginal Cost (dollars)
100 $8.00 $7.50
200 7.50 6.50
300 7.00 7.00
400 9.00 12.00
500 12.00 15.00
600 15.00 17.00

Instructions: Enter your answers as a whole number.

a. If the market price is $15.00 per costume, how many costumes should Chrissy's Costumes make?

      costumes

b. If the market price for costumes falls to $12.00 per costume, how many costumes should Chrissy's Costumes make now?

       costumes

Solutions

Expert Solution

(A) A perfectly competitive firm produces at P = MC.

The market price is $15

=> P = MC = $15 corresponding to 500 units of output.

Therefore, Chrissy costume should make 500 units of costume at a price of $15.

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(B)

A perfectly competitive firm produces at P = MC.

The market price falls from $15 to $12

=> P = MC = $12 corresponding to 400 units of output.

Therefore, Chrissy costume should make 400 units of costume at a price of $12.

--------------------------


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