ECON 201 Problem Set 2 - Principles of Microeconomics

1 A perfectly competitive firm has fixed costs of $30 and total costs as indicated in the table below.
Output

Total
Fixed
Cost

Total
variable
Cost

Total Cost

0
1
2
3
4
5
6
7
8
9

Average
Variable
Cost

Average
Total
Cost

Marginal
Cost

30
39
47
54
60
67
75
84
95
108

10

Average
Fixed Cost

123

a. Fill in the missing values in the table.
b. Graph total fixed cost, total variable cost, and total cost. (Be sure to understand what is behind the shape of each of the curves.)
c. Graph AFC, AVC, ATC, and MC. Mark the two key points as discussed in class. Explain in your own words why the MC curve intersects both the AVC and ATC curves at their minimums.
d. What will happen to the AVC, ATC, and MC if the fixed cost increases by 40.
e. How much will the firm produce if the market price that it faces is $13.5. Will the firm make profits or losses? How much?
f. Answer the questions in part (e) is the price was $8.5.
g. Answer the questions in part (e) is the price was $6.
h. The following table represents the market demand schedule for the industry.
Price

Supply by
the Firm

Profit/Loss

Industry
Supply

3
4
6
8.5
11
13.5
15

Market
Demand
1000
800
700
600
300
200
50

h.1. Fill in the individual supply schedule for the firm
h.2. Calculate the Profit or Loss for the firm and fill column 3 of the table
h.3. Fill in column 4 of the table if there are 100 identical firms in the industry.
h.4. Use column 5 from the table to determine what will be the equilibrium price for the industry. What will be the quantity supplied by each firm in the short run?