Question

Assume that the following cost data are for a purely competitive producer:

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 0 na $0.00 $0.00 na 1 $60.00 $45.00 $105.00 $45.00 2 $30.00 $42.50 $72.50 $40.00 3 $20.00 $40.00 $60.00 $35.00 4 $15.00 $37.50 $52.50 $30.00 5 $12.00 $37.00 $49.00 $35.00 6 $10.00 $37.50 $47.50 $40.00 7 $8.57 $38.57 $47.14 $45.00 8 $7.50 $40.63 $48.13 $55.00 9 $6.67 $43.33 $50.00 $65.00 10 $6.00 $46.50 $52.50 $75.00

	(a) At a product price of $66.00	(b) At a product price of $41.00	(c) At a product price of $32.00
Will this firm produce in the short run?	(Click to select)   No   Yes	(Click to select)   Yes   No	(Click to select)   Yes   No
If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output?	(Click to select)   Not applicable   Profit-maximizing   Loss-minimizing   output =  units per firm	(Click to select)   Profit-maximizing   Not applicable   Loss-minimizing   output =  units per firm	(Click to select)   Profit-maximizing   Loss-minimizing   Not applicable   output =  units per firm
What economic profit or loss will the firm realize per unit of output?	(Click to select)   Loss   Not applicable   Profit   per unit = $	(Click to select)   Not applicable   Loss   Profit   per unit = $	(Click to select)   Total profit   Total loss   = $

d. In the table below, complete the short-run supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3).

	(1) (2) (3) (4) Price Quantity Supplied, Single Firm Profit (+) or Loss (–) Quantity Supplied, 1,500 Firms $22.00 27.00 32.00 38.00 43.00 47.00 57.00

e. Now assume that there are 1,500 identical firms in this competitive industry; that is, there are 1,500 firms, each of which has the cost data shown in the table. Complete the industry supply schedule (column 4 in the table above).

f. Suppose the market demand data for the product are as follows:

	Price Total Quantity Demanded $22.00 19000 27.00 17000 32.00 15000 38.00 13500 43.00 12000 47.00 10500 57.00 9500

What will be the equilibrium price? $   .     

What will be the equilibrium output for the industry?   .     

For each firm?     units.           

Instructions: Round your answers to 2 decimal places. Enter positive values for profit or loss.

What will profit or loss be per unit?   

Will this industry expand or contract in the long run?

Answer 1

a) P=66

Yes, this firm will produce

Profit maximizing output = 9 units

Profit per unit = 66-50 = 16

b) P = 41

Yes, this firm will produce

Loss minimizing output = 6 units

Loss per unit = 41-47.5 = -6.5

c) P =

No, not produce

Not applicable

Output = 0 units

Total loss = -60

d and e)

P	QS-1 FIRM	P/L	QS-1500 FIRMS
22	0	-60	0
27	0	-60	0
32	0	-60	0
38	5	(38-49)*5 = -55	7500
43	6	(43-47.5)*6 = -27	9000
47	7	(47-47.14)*7 = -0.98	10500
57	8	(57-48.13)*8 = 70.96	12000

f) Equilibrium price = 47

Equilibrium output = 10500

per firm = 7 units

Loss per unit = 47-47.14 = -0.14

per firm = -0.98

This industry will contract