Question

Assume the Green Corporation is producing 25 units of output in a purely competitive market. The firm’s marginal revenue is $15. Its total fixed costs are $100 and its average variable cost is $3 at 25 units of output. This corporation is realizing an economic profit of $______________. Please do not input the $ sign. If the answer is $40, please input 40 for your answer.

Answer 1

Since in the perfectly competitive firm, there are large number of buyers and sellers and they sell identical product and price is determined by industry and not by the firm. So any firm or any buyers can buy or sell any quantity of goods at the market price. It means there is no effect of the individual demand or supply of goods on the market price. It means production decisions cannot affect the market price. There is perfect information about the product to the buyers and sellers.

The profit-maximizing condition of perfectly competitive firm is

P=MC

MR and Price are same in the perfect competition.

Corresponding to this condition, quantity is Determined.

As it has been given that the Green Corporation is producing 25 units of output in a purely competitive market. The firm’s marginal revenue is $15. Its total fixed costs are $100 and its average variable cost is $3 at 25 units of output.

Q=25

TFC=100

MR=P

=15

AVC=3

TVC=AVC*Q

=3*25

=75

TC=TFC+TVC

=100+75

=175

TR=P*Q

=15*25

=375

Economic profit=TR-TC

=375-175

=200

This corporation is realizing an economic profit of 200.