Question

In: Economics

1. Complete the table below, and then answer the following questions. Q TC TFC TVC ATC...

1. Complete the table below, and then answer the following questions.

Q

TC

TFC

TVC

ATC

AVC

MC

0

80

1

40

2

70

3

40

4

100

a) Suppose the firm is a price–taker and the price is $60 per unit.

i) What quantity will it produce (find the profit-maximizing level of output)?

ii) Calculate the profit/loss.

b) What is the shut-down price?

Solutions

Expert Solution

1.

Q TC TFC TVC ATC AVC MC
0 80 80 0 --- --- ---
1 120 80 40 120 40 40
2 140 80 60 70 30 20
3 200 80 120 66.67 40 60
4 300 80 220 75 55 100

A.

i.

Price = $60

Profit maximizing quantity is produced where, P = MR = MC. In this case, it is $60 and firm will produce 3 units.

At 3 units of output, price will be equal to the MC.

ii.

Profit = 60*3 - 200

Profit = -$20

So, there is a loss of $20.

B.

Shut down price is when Price is less than the AVC. So, shut down price is $30. If price goes below $30, then firm will shut down.


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