Question

In: Economics

A firm in a competitive market is a price taker (recall that this is true for...

A firm in a competitive market is a price taker (recall that this is true for every firm and every customer in a perfectly competitive market). For this example, the market equilibrium price is $6. The firm’s total cost (TC) function is made up of Fixed Cost (FC, which does not vary with quantity) and Variable Cost (VC, which does vary with quantity). The TC function for this firm is: TC = 10 + 2Q – 0.2Q2 + 0.01Q3 a) Find the equation for the marginal cost curve (MC). Recall that MC = TC/Q. b) Find the equation for the Average Variable Cost (AVC). Recall that AVC = VC/Q. c) Find the equation for the Average Total Cost (ATC). Recall that ATC = TC/Q. d) Find the fixed cost. Recall that Total Cost = Fixed Cost + Variable Cost. e) Find the Q at which profit is maximized. Recall that this point is where Marginal Revenue ($6, the unit price of the good) is equal to Marginal Cost (for which you found the formula in part a). f) At the profit maximizing point, find the economic revenue (TR – TC at the profit maximizing Q). g) Find the shutdown price, where the Marginal Cost curve intersects the AVC curve (MC= AVC) and the AVC curve is at its lowest point (AVC/Q = 0).

Expert Solution

The TC function for this firm is: TC = 10 + 2Q – 0.2Q² + 0.01Q³

Answer:- From the above equation the fixed cost will be the constant number that is = 10

While the variable cost will be the dependent of Q and it is given by 2Q – 0.2Q² + 0.01Q³

Answer:- equation for the marginal cost curve; MC = dTC/dQ. =d [ 10 + 2Q – 0.2Q² + 0.01Q³ ] /dQ.

MC equation= Q - 0.4Q + 0.03Q²

Answer:- equation for the Average Variable Cost (AVC).

AVC = VC/Q. =[2Q – 0.2Q² + 0.01Q³]/Q

AVC = 2 – 0.2Q+ 0.01Q2

Answer:- the Average Total Cost ATC = TC/Q.

ATC=[10 + 2Q – 0.2Q² + 0.01Q³]/Q

ATC = 10/Q + 2 – 0.2Q + 0.01Q²

Answer:- We know that Total Cost = Fixed Cost + Variable Cost.

FC is fixed = 10 It is independent of Q

Answer:- Q at which profit is maximized.

Total revenue = marginal cost* quantity =6Q

Profit = Total revenue – total cost

Profit = 6Q -10 - 2Q +0.2Q² - 0.01Q³

Profit =-10+4Q+0.2Q² - 0.01Q³

For profit maximization,

d/dq(profit)=0

d/dq(-10+4Q+0.2Q² - 0.01Q³)=0

4+0.4Q-0.03Q²=0

Solving above equation, we will get

Q=-6.66 ; +20

So profit maximizing quantity is 20 units

Answer:- Economic revenue =

TR = 20*6 =120

TC=(-10+4*20+0.2*20² - 0.01*20³)=-10+80+80-80=70

Economic revenue =120-70=$50

Rahul Sunny answered 2 years ago

1. A single firm in a perfectly competitive market is a price taker? True or False....

1. A single firm in a perfectly competitive market is a price taker? True or False. Explain with examples. 2. What is the supply curve of a perfectly competitive firm? Is it different from that of the market supply curve? Explain. 3.If a firm makes a loss in the short run, then it would shut down? If no, discuss. If yes, discuss.Offer examples 4. Does the monopolist have a supply curve? Discuss

Question. Which of the following is true in a purely competitive, price-taker market with low barriers...

Question. Which of the following is true in a purely competitive, price-taker market with low barriers to entry? Multiple Choice A. In the long run, firms will produce the quantity of output that minimizes per unit costs (ATC) of production. B. If economic profits are present in the short run, new firms will enter the industry, driving down prices until the industry returns to zero economic profits. C. Firms produce identical products. D. All of the above statements are true.

1. A perfectly competitive firm is a price taker because Its products are differentiated. The price...

1. A perfectly competitive firm is a price taker because Its products are differentiated. The price of the product is determined by many buyers and sellers. It has market power. Market supply is upward-sloping. 2. When the short-run marginal cost curve is upward-sloping, The average total cost curve is above the marginal cost curve. The average total cost curve is upward-sloping Diminishing returns occurs with greater output. 3. If a perfectly competitive firm is producing a rate of output at...

A perfectly competitive firm is a price taker because: It has a relatively large degree of...

A perfectly competitive firm is a price taker because: It has a relatively large degree of control over price It has been able to differentiate its product from others in the industry There are a small number of firms in the industry It produces a very large percentage of total output It produces a very small percentage of total output

what it means by price taker firm

15. Which of the following is a true statement about the difference between a price-taker firm...

15. Which of the following is a true statement about the difference between a price-taker firm and a competitive price-searcher firm in the long run (more than one answer is correct)? a. Both will sell their products at a price equal to average total cost, but only the price-searcher will produce at minimum average total cost. b. Both will sell their products at a price equal to marginal cost, and only the competitive price searcher will produce at minimum average...

1. True or False: In a price-taker market, if a business operator produces inefficiently—and the cost...

1. True or False: In a price-taker market, if a business operator produces inefficiently—and the cost of producing the good is maximized—the operator will be able to make at least a normal profit. 2. True or False: When the firms in the industry are just able to cover their cost of production, economic profit is zero. Therefore, if demand falls, causing prices to go down even a little bit, economic profits will be negative in the long run.

In a perfectly competitive market structure, a competitive firm has the given price as a price...

In a perfectly competitive market structure, a competitive firm has the given price as a price taker and, therefore, its price is equal to its MR shown on the same demand curve as the perfectly elastic demand curve. On the other hand, a monopoly firm has a downward sloping demand curve and its equilibrium price is always larger than MR (P>MR). Briefly explain why? Use both equation and diagram.

A perfectly competitive market can only make normal profits because there are many price taker firms...

A perfectly competitive market can only make normal profits because there are many price taker firms in the industry and absence of barriers in on entry and exit of new firms and can maximizes its profits when the marginal revenue is equal to the marginal cost. Also a perfectly competitive firm will always produce till a output where marginal revenue equals to, marginal cost and the firm can only incur profit by producing fewer than the equilibrium quantity as marginal...

The price in a perfectly competitive market is $8. At that price, a firm is willing...

The price in a perfectly competitive market is $8. At that price, a firm is willing to supply 250 of a good. The firm's average total cost (ATC) to supply this quantity will be $6.5 and its average variable cost (AVC) will be $5. What is the firm's Total Cost? A. 1750 B. 2125 C. 1625 D. 2000 E. 1500 F. 1875