Assume that the following cost data are for a purely competitive producer: Average Fixed Average Average Total…
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Question “Assume that the following cost data are for a purely competitive producer: Average Fixed Average Average Total…”
Assume that the following cost data are for a purely competitive producer:
Average Fixed Average Average Total Variable Cost Marginal Cost Total Product Cost Cost 000 S 0.00 na na 45.00 S 105.00 72.50 $ 45.00 60,00 S 42.50 S 40.00 30.00 S 6000 S 35.00 2000 S 40.00 S 52.50 S 30.00 15.00 $ 3760 S 3500 49.00 $ 12.00 S 37.00 S 1000$ 37.50 S 47.50 S 47.14 S 40.00 3857 S 45.00 857 $ 48.13 S 55.00 4063 S 7.50 $ 5000 $ 65.00 667 S 6.00 S 43 33 S 4650 S 52.50 S 75.00 10
Answer the questions in the first column in the table below for the price listed at the top of each of the other three columns
Instructions: If you are entering any negative numbers be sure to include a negative sign () in front of those numbers. Select “Not applicable” and enter a value of “O for output if the firm does not produce At a product price of $68.00 At a product price of $43.00 At a product price of $34.00 Will this firm produce in the short run? Click to select) able to produce what vol be Theo can you etectunOA (Click to select)v output (Click to select -units output I-」units per firm output units profit-maximizing or loss-minimizing output? perf per firm What economic profit or loss will the firm realize per unit of output? Click to select per unit- S Click to select) per unit S
d. In the table below, complete the shot.run supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3)
complete the short-run supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3) Instructions: Enter your answers as whole numbers. If you are entering any negative numbers be sure to include a negative sign Θ in front of those numbers. Quantity Supplied Single FirmProfit (+) or Loss (-) Quantity Supplied Price Firms S24.00 29.00 34.00 41.00 46 00 57.00 68 00
e. Now assume that there are 1,500 identical firms in this competitive industry, that is, there are 1,500 films, each of which has the cost data shown in the table. Complete the industry supply schedule (column 4 In the table above)
f. Suppose the market demand data for the product are as follows: Price $24.00 17000 29 00 15000 34.00 13500 41 00 12000 46 00 10500 51.00 9500 56 00 8000 What will be the equilibrium price?$ What will be the equilibrium output for the industry units For each firm?
Instructions: Round your answers to 2 decimal places. Enter positive values for profit or loss. What will profit or loss be per unit? Click to select) per unit $ Per firm? $ Will this industry expand or contract in the long run? (Click to select)
Answer
a)
The price is $68,
An extremely competitive firm can increase its output as long as P>MC/P=MC is higher.
It is evident that MC is lower than Q=9’s price, but MC>P Q=10.
So, optimal output is 9 units.
At this output level AVC
As discussed above, profit maximizing or loss minimizing
output is 9 units per firm.
Economic profit=(P-ATC)*Q=(68-50)*9=$162
b)
The price is $43,
An extremely competitive firm can increase its output as long as P>MC/P=MC is higher.
It is evident that MC is lower than Q=6’s price, but MC>P Q=7.
So, optimal output is 6 units.
At this output level AVC
As discussed above, profit maximizing or loss minimizing
output is 6 units per firm.
Economic profit=(P-ATC)*Q=(43-47.50)*6=-$27 (Its a
loss)
c)
The price is $34,
We can see that AVC>P for each output level. So, firm
will shut down in short run.
Hence, output of a firm=0
Economic Profit=Total Revenue at nil output-Total Cost
at nil output=0-60=-$60 (Its a loss)
(Loss equals fixed cost in the event of shutting down)
d-e)
For every output level, we can see that AVC>34. In this case, the firm will close down if the price is less than 34. Fixed cost will equal the loss.
Part a and b describe how a firm can select the best output to price higher prices. We can develop following schedule.
Price | Q = Quantity of services provided by a single firm | Profit (+)/Loss (-) | Qs=Quantity supplied by 1500 firms=1500*Q |
24 | 0 | -60.00 | 0 |
29 | 0 | -60.00 | 0 |
34 | 0 | -60.00 | 0 |
41 | 6 | (41-47.50)*8=-39.00 | 9000 |
46 | 7 | (46-47.14)*7=-7.98 | 10500 |
57 | 8 | (57-48.13)*8=70.96 | 12000 |
68 | 9 | (68-50)*9=162.00 | 13500 |
f)
It is evident that for a price of $46, the quantity required is equal to the quantity provided. 10500. So,
Equilibrium price=$46
Equilibrium output for the industry=10500
units
For each firm=7 units
Profit per unit=(P-ATC)=46-47.14=-$1.14
(Its a loss of $1.14 per unit)
Per firm=(P-ATC)*Q=(46-47.14)*7=-$7.98
(Its a loss of $7.98 per firm)
In the short term, firm is losing money. The firm will exit the industry. So,
Industry will contract in the long run.
(Contract)
Conclusion
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