Microeconomics Help.
borm52
extra_credit_2.docExtra Credit
Pure Competition Worksheet
(Due No Later Than Midnight Sunday April 7)
(Maximum Point Value = 7 Points)
Answer the questions below on the basis of the cost data given in the following table.
Assume that the data is valid for a single firm in a purely competitive industry and is valid in the short run.
In order to receive credit for this assignment you must use the marginal revenue-marginal cost analysis and you must explain how you arrived at your answers and show your work / calculations. You will receive only partial credit if you use the total revenue-total cost analysis to determine you answers.
|
TOTAL OUTPUT |
AVERAGE FIXED COST |
AVERAGE VARIABLE COST |
AVERAGE TOTAL COST |
MARGINAL COST |
|
0 |
-- |
-- |
-- |
-- |
|
1 |
$ 50.00 |
$ 40.00 |
$ 90.00 |
$ 40.00 |
|
2 |
25.00 |
36.00 |
61.00 |
32.00 |
|
3 |
16.67 |
30.00 |
46.67 |
18.00 |
|
4 |
12.50 |
30.00 |
42.50 |
30.00 |
|
5 |
10.00 |
32.00 |
42.00 |
40.00 |
|
6 |
8.33 |
35.00 |
43.33 |
50.00 |
|
7 |
7.14 |
40.00 |
47.14 |
70.00 |
|
8 |
6.25 |
47.50 |
53.75 |
100.00 |
A. The market price for this firm’s product is $38.00. Will it be advantageous for this firm to produce in the short-run? Why or why not? If it will produce, what amount of output will the firm produce? What will its total economic profit or loss be (whether the firm produces or closes down)?
B. Market demand has decreased and the market price for this firm’s product now decreases to $29.00. Now will it be advantageous for this firm to produce in the short-run? Why or why not? If it will produce, what amount of output will the firm produce? What will its total economic profit or loss be (whether the firm produces or closes down)?
C. Market demand has now increased and the market price for this firm’s product increases to $71.00. Now will it be advantageous for this firm to produce in the short-run? Why or why not? If it will produce, what amount of output will the firm produce? What will its total economic profit or loss be (whether the firm produces or closes down)?
It is worthwile to produce if the price is above your average variable costs. If the price is between the average variable costs and average total costs, you are losing money, but you are losing less money than if you shut down. If the price is below your average variable costs, then producing nothing and eating your fixed costs will lose less money than producing something and paying costs of production. If you choose to produce, it is wortwhile to produce an additional unit if the marginal costs are less than or equal to the marginal revenue (price).
