Question

Assume a single firm in a purely competitive industry has variable costs as indicated in the following table in column. Complete the table and answer the questions.

Total Product	Total Var.	Total Cost	AFC	AVC	ATC	MC
0	$0	$40
1	55
2	75
3	90
4	110
5	135
6	170
7	220
8	290

(a) At a product price of $52, will this firm produce in the short run? Explain. What will its profit or lossbe?

(b) At a product price of $28, will this firm produce in the short run? Explain. What will its profit or loss be?

(c) At a product price of $22, will this firm produce in the short run? Explain. What will its profit or loss be?

(d) Complete the following short-run supply schedule for this firm.

Product Price	Quantity Supplied	Profit (+) or Loss (-)
$72
52
45
28
22
15

Assume there are 500 identical firms in this industry, that they have identical cost data as the firm above, and that the industry demand schedule is as follows:

Product Price	Quantity Demanded	Quantity Supplied
$72	2500
52	3500
45	4000
28	5200
22	5900
15	6700

(e) What will the equilibrium price be?

(f) What will the equilibrium output for each firm be?

(g) What will profit or loss be per unit?

(h) What will profit or loss be per firm?

Answer 1

Total Product	Total Var.	Total Cost	AFC	AVC	ATC	MC
0	0	40
1	55	95	40	55	95.00	55
2	75	115	20	37.5	57.50	20
3	90	130	13.33	30	43.33	15
4	110	150	10.00	27.5	37.50	20
5	135	175	8.00	27	35.00	25
6	170	210	6.67	28.33	35.00	35
7	220	260	5.71	31.43	37.14	50
8	290	330	5.00	36.25	41.25	70

A.

At a price of $52, Firm will produce in the short run.

Firm will produce 7 units as at this level the MC is $50.

Net profit = 7*52 – 260 = $104

B.

At a price of $28, variable cost is $27. So firm will operate in the short run. Firm will produce in the short run.

Firm will produce 5 units as at this level the MC is $25.

Net profit = 5*28 – 175 = -$35

There is a loss of $35. Since the price is $28 and variable cost is $27, so firm will operate in the short run.

C.

At price of $22, firm will not operate in the short run as it is lower than the average variable cost at every level of output. So, firm will shut down.

D.

Product Price	Quantity Supplied	Profit (+) or Loss (-)
$72	8	$246.00
52	7	$104.00
45	6	$60.00
28	5	-$35.00
22	Shutdown
15	Shutdown

Pl. repost other unaswered questions for their proper answers.