Question
In: Economics
Suppose a firm is a price-taker and the market price is p = 5. The firm produces q=10 units and its costs at that quantity are MC(q=10) = 6 and ATC(q=10) = 4. Which statement is correct?
Need as much details as possible. Microeconomics.
Suppose a firm is a price-taker and the market price is p = 5. The firm produces q=10 units and its costs at that quantity are MC(q=10) = 6 and ATC(q=10) = 4. Which statement is correct?
a. The firm’s profits are negative at q = 10.
b. The firm is maximizing profits at q = 10.
c. The optimal quantity to produce is less than 10.
d. At q = 10, ATC is decreasing.
Solutions
Expert Solution
Answer: The correct option is b) The firm is maximizing profits at q=10.
Since firm is a price taker, it will maximize profit where P = MC. Here,
P = MC = 6 at 10 units of output, thus firm is maximizing profit.
Also, at 10 units of output price is more than the average total cost ( 5 > 4) which implies that firm is earning a profit of 1$ on every unit sold.
Rahul Sunny answered 2 years agoRelated Solutions
Suppose that the market price is $15 per unit. Q TC FC VC ATC AVC MC...
Suppose that the market price is $15 per unit.
Q
TC
FC
VC
ATC
AVC
MC
0
$8
$8
0
8
0
0
1
$12
$8
$4
$12
$4
$4
2
$14
$8
$6
$7
$3
$2
3
$20
$8
$12
$6.67
$4
$6
4
$30
$8
$22
$7.50
$5.50
$10
5
$50
$8
$42
$10
$8.40
$20
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(Table 7.1) Which of the following is correct at 4 units of
output?
Output Quantity Q
Fixed Costs
FC
Variable Costs VC
Total Cost TC
Average Fixed Cost AFC
Average Variable Cost AVC
Average Total Cost ATC
0
70
0
1
70
40
2
70
70
3
70
120
4
70
210
5
70
330
AFC = 0.06; AVC = 0.02; ATC =
0.08
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