Question

In: Economics

Suppose that in order to produce any positive amount of output, a firm must build an...

Suppose that in order to produce any positive amount of output, a firm must build an operating facility which costs $40. The Variable Cost of production is equal to 6q, where q is the quantity of output. Therefore the Marginal Cost of production is constant at MC = $6. If the firm decides not to produce, it does not build the operating facility, and so it incurs 0 costs. The demand facing the firm is given by P = 20 – 2q.
a) (3 points) What is the Average Total Cost of producing 5 units of output?
b) What amount of output should the firm produce in order to maximize its profit?
c) What is the socially optimal level of output?

d) What is the total social welfare of the socially optimal level of output?

Solutions

Expert Solution


Related Solutions

Why would a firm decide to produce a positive quantity of a output even though it...
Why would a firm decide to produce a positive quantity of a output even though it makes negative profits by doing​ so? A. Because the price is high enough to cover the average fixed cost. B. Because the price is high enough to cover the average total cost. C. Because the price is high enough to cover the average variable cost. D. A firm would never produce when profit is negative.
Suppose a monopoly can produce any level of output it wishes at a constant marginal (and...
Suppose a monopoly can produce any level of output it wishes at a constant marginal (and average) cost of $5 per unit. Assume the monopoly sells its goods in two different markets separated by some distance. The demand curve in the two markets are given by FIRM1 : Q1 = 55 − P1 FIRM2 : Q2 = 70 − 2P a) How would your answer change if it costs demanders only $5 to transport goods between the two markets? What...
1.For a firm in a perfectly competitive market, marginal revenue for any positive level of output...
1.For a firm in a perfectly competitive market, marginal revenue for any positive level of output is a) Greater than market price b) Less than market price c) The same as market price 2. Under what circumstances will a firm in a perfectly competitive industry definitely want to shut down all production in a short run setting? a) When the market price is less than ATC b) When the market price is less than AVC c) WHen the market price...
The table below gives the amount of output/total product (TP) that a firm can produce with...
The table below gives the amount of output/total product (TP) that a firm can produce with various combinations of labor (L) and capital (K): K L TP AP MP 10 4 91 29 10 5 121 10 6 150 10 7 175 10 8 197 10 9 212 10 10 217 10 11 215 a. Is the above production function a short run or long run production function? EXPLAIN why. b. Complete the table by computing the average product (AP)...
Suppose a textbook monopoly can produce any level of output it wishes at a constant marginal...
Suppose a textbook monopoly can produce any level of output it wishes at a constant marginal (and average) cost of $5 per book. Assume that the monopoly sells its books in two different markets that are separated by some distance. The demand curve in the first market is given by Q_1=55- P_1 and the curve in the second market is given by Q_2=70-2P_2 Remember sometimes is easier to work with inverse demand functions. First assume that the monopolist can charge...
3. In order to produce 28 widgets, a firm must use 14 workers in combination with...
3. In order to produce 28 widgets, a firm must use 14 workers in combination with 4 machines. a. Let q denote the number of widgets, L denote the number of workers, and K denote the number of machines. Write down the production function that represents this technology for producing widgets. In a diagram with L on the horizontal axis and K on the vertical axis, draw the isoquant associated with q = 56. b. Let w represent the wage...
If the firm was regulated to produce at the socially optimal output
If the firm was regulated to produce at the socially optimal output ( producer’s surplus is at its maximum), how much would the firm produce?
Suppose a perfectly competitive paper firm can produce 10 tons of paper at an output level...
Suppose a perfectly competitive paper firm can produce 10 tons of paper at an output level where marginal revenue is equal to marginal cost. The price per ton of paper is $80 and the average total cost is $95. Suppose the total fixed cost = $100. How much is the profit if the firm shuts down?
Suppose your firm uses 2 inputs to produce its output: K (capital) and L (labor). the...
Suppose your firm uses 2 inputs to produce its output: K (capital) and L (labor). the production function is q = 50K^(1/2)L^(1/2). prices of capital and labor are given as r = 2 and w = 8 a) does the production function display increasing, constant, or decreasing returns to scale? how do you know and what does this mean? b) draw the isoquants for your firms production function using L for the x axis and K for y. how are...
Should a firm operating in a competitive market produce and sell their output if they incur...
Should a firm operating in a competitive market produce and sell their output if they incur a loss and not a profit? Why or why not? How does the answer depend on the size of the loss?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT