A purely competitive nut and bolt manufacturer faces a market price of $7.00, an average total...

A purely competitive nut and bolt manufacturer faces a market price of $7.00, an average total cost of $7.50, an average variable cost of $6.00, and a marginal cost of $6.75. Should this firm expand output, contract output, or shut down in the short-run? Use a graph to illustrate your answer, making sure to indicate these price and cost values

Expert Solution

Ans) In Perfectly competitive market, price is equal to marginal revenue. And firm produces the quantity where MR and MC curve intersect. If MR is more than MC, firm should expand the production. If MC is more than MR, firm should reduce its production.

Further, if price is above ATC, firms earn positive economic profit. If price is below ATC but above AVC, firms are earning negative economic profit but will continue producing in short run. And if price is below AVC, firm will shutdown.

Here, we see that MR is more than MC and hence firm should expand its production to reach the profit maximising quantity. (Red line is optimal point, blue line is showing current situation)

Rahul Sunny answered 2 years ago

Suppose that a competitive firm faces a market price of $8, an average variable cost of...

Suppose that a competitive firm faces a market price of $8, an average variable cost of (AVC) or 7, fixed costs of ($400) and is maximizing their profits by producing 200 units. Will the firm produce in the short run? Will the firm produce in the long run?

A competitive firm faces a market price of $15. The firm has a total cost function...

A competitive firm faces a market price of $15. The firm has a total cost function equal to TC(q) = 30 + 5q + q2 . What quantity does the firm produce? What are its profits? Will the firm shut down in the short run? Explain.

when a firm faces a market price that is between the minimums of average total cost...

when a firm faces a market price that is between the minimums of average total cost and average variable cost, which of the strategies should it choose? a. continue to produce and sell output because it will maximize its economic profit b. produce nothing and shut down the business c. produce nothing and keep the business d. continue to produce and sell output because it will minimize its economic loss

1) A firm operating in a purely competitive environment is faced with a market price of...

1) A firm operating in a purely competitive environment is faced with a market price of $250. The firm’s total cost function (short run) is as follows: TC = 6000 + 400Q – 20Q2 + Q3 Should the firm produce at this price in the short run? If the market price is $300, what will total profits (losses) be if the firm produce 10 units of output? Should the firm produce at this price? If the market price is greater...

The actions of a firm in a purely competitive industry have no effect on market price;...

The actions of a firm in a purely competitive industry have no effect on market price; therefore, the demand curve faced by the firm is * 1 point a. unknown. b. a downward-sloping curve. c. a horizontal line at the level of the market price. d. a firm’s total revenue curve. A competitor maximizes profit by producing the output that * 1 point a. equates price and average variable cost. b. equates TR and TC. c. equates MR and MC....

Assume that the following cost data are for a purely competitive producer: Total Product Average Fixed...

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 purely competitive firm finds that the market price for its product is $20.00. It has...

A purely competitive firm finds that the market price for its product is $20.00. It has a fixed cost of $100.00 and a variable cost of $15.00 per unit for the first 50 units and then $25.00 per unit for all successive units. A. Does price equal or exceed average variable cost for the first 50 units? What is the average variable cost for the first 50 units? B. Does price equal or exceed average variable cost for the first 100 units?...

Design documents state that a total of six M10 x 1.5, class 5.8 bolt and nut...

Design documents state that a total of six M10 x 1.5, class 5.8 bolt and nut pairs fasten a 15 mm thick steel cap to a 15 mm thick steel flange. Safety requirements dictate that this fastening system must possess a safety factor of 1.5. Use the preload determined in Part A when calculating the bolted joints safety in dynamic loading in Part B. (Note: One may find km using the method outlined in class, or one may use Eqn....

A perfect competitive firm faces the total cost TC=150+2q2. a. If the market price p=80, how...

A perfect competitive firm faces the total cost TC=150+2q2. a. If the market price p=80, how much output will the firm produce? b. At p=80, what is the firm’s profit? c. Find the quantity of output for which marginal cost equals average variable cost. What does the information tell you about the firm’s decision about whether to shut down?

Assume the following cost data are for a purely competitive firm: Total product Average fixed cost...

Assume the following cost data are for a purely competitive firm: Total product Average fixed cost Average variable cost Average total cost Marginal cost 0 1 60 45 105 45 2 30 42.5 72.5 40 3 20 40 60 35 4 15 37.5 52.5 30 5 12 37 49 35 6 10 37.5 47.5 40 7 8.57 38.57 47.14 45 8 7.5 40.63 48.13 55 9 6.67 43.33 50 65 10 6 46.5 52.5 75 At a product price of...

Question