If referencing a perfectly competitive firm: Marginal Revenue (MR) = marginal costs (MC) at 1,000 units...

If referencing a perfectly competitive firm: Marginal Revenue (MR) = marginal costs (MC) at 1,000 units of production. The price per unit of the product is $22 at this output. The TOTAL FIXED COSTS (TFC) at this output=$10,000. AVERAGE TOTAL COSTS (ATC) = $25 per unit at this output.

1) Should the firm continue to produce at this output? Why or why not?

2) What is the total profit or loss at this level of production? Show calculation.

Solutions

Expert Solution

P=22

Output = 1000

TFC = 10000

ATC = 25

TC = 25000

VC = 15000

AVC = 15

1) As the price =22 is greater than AVC = 15, the firm can continue in short run

2) Profit or loss = TR-TC = 1000*22 – 25000 = 22000-25000 = -3000

Rahul Sunny answered 1 year ago

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