Question

Answer the following questions below based on the following monthly product cost data for a company that is selling its product in a perfectly competitive market.

QUANTITY	TC	AV C	ATC	MC
0	800	---	---	---
100	1200
300	1600
500	2500
700	3500
900	4700

1. Fill in the columns for average variable costs (AVC), average total costs (ATC) and for marginal costs (MC).

2. How much is the total fixed costs of the firm?

3. How much is the long-run equilibrium price for this firm?

4. Explain why this firm will not produce if the price in the market for the product was $2.60?

5. At a market price of $6, what quantity would this firm produce and what would be their profit?

Please provide correct answers.

Answer 1

A.

Q	TC	VC	AVC	ATC	MC
0	800	0
100	1200	400	4	12	4
300	1600	800	2.67	5.33	2
500	2500	1700	3.40	5	4.5
700	3500	2700	3.86	5	5
900	4700	3900	4.33	5.22	6

AVC=VC/Q

ATC=TC/Q

MC=change in TC/change in Q

VC=TC-FC

FC does not change with the output so, at quantity 0, TC equals FC.

B.

Total Fixed Cost = 800

Explanation:

FC does not change with the output so, at quantity 0, TC equals FC.

C.

long-run equilibrium price: $5

Explanation:

the long-run equilibrium price is when ATC is minimum.

D.

Explain why this firm will not produce if the price in the market for the product was $2.60?

because the firm will shut down when the price is less than Minimum AVC to minimize losses. here 2.67 is minimum AVC. when the firm will produce, it losses equal to fixed cost and some portion of variable cost. but when it will shutdown loss will be equal to fixed cost only. so the firm will shut down when the price is less than AVC.

E.

900 units

Explanation:

the firm maximizes its profit where MR equals MC. price-taking firm, price=MR. so firm will produce 900 quantity to maximize its profit.