Question
In: Economics
A firm in a perfectly competitive industry faces the following cost and revenue conditions: ATC =...
A firm in a perfectly competitive industry faces the following cost and revenue conditions: ATC = $6; AVC = $3; MR = MC = $5. The firm is
Solutions
Expert Solution
Answer: there is economic loss
As per the condition of competitive market, the stage of equilibrium is (P = MC), which is $5. This price is smaller than ATC of $6.
Therefore, the economic loss per unit = ATC – P
= $6 - $5
= $1
Although there is economic loss, the firm should not leave the market in the short-run because the price ($5) covers the AVC of $3.
In the long-run the firm may get normal profit.
Rahul Sunny answered 11 months agoRelated Solutions
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Price Q
of
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Total
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Total Fixed Cost
P? Q? 7,400 TC? 3,300
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Cost Average
Total Cost
Average Variable
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TVC? 9
3
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Part 1. Average Fixed Cost ____
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Assume the cost data is for a perfectly competitive firm: Q AFC AVC ATC MC 1...
Assume the cost data is for a perfectly competitive
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AFC
AVC
ATC
MC
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
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8
7.5
40.63
48.13
55
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6.67
43.33
50
65
10
6
46.5
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75
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Assume the cost data is for a perfectly competitive firm: Q AFC AVC ATC MC 1...
Assume the cost data is for a perfectly competitive
firm:
Q
AFC
AVC
ATC
MC
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
Complete the following table:
P = 56
P = 40
P = 32
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10
110
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150
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180
25
225
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300
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385
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480
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