Questions: Suppose that the total fixed cost for a particular competitive firm is 3. The marginal cost for the first unit produced is 8 and decreases by 2 for each of the next two units produced. Thereafter, marginal cost increases by 2 for each additional unit. a. Complete the table below. Note: Round your "Average Variable Cost", "Average Total Cost" answers to 2 decimal places. b. What is the shutdown price? Shutdown price: c. If the market price is 10, what is the firm's profit maximizing output? What is the firm's total profit or loss? Output: Total: (Click to select) :

Suppose that the total fixed cost for a particular competitive firm is 3. The marginal cost for the first unit produced is 8 and decreases by 2 for each of the next two units produced. Thereafter, marginal cost increases by 2 for each additional unit. a. Complete the table below. Note: Round your "Average Variable Cost", "Average Total Cost" answers to 2 decimal places. b. What is the shutdown price? Shutdown price: c. If the market price is 10, what is the firm's profit maximizing output? What is the firm's total profit or loss? Output: Total: (Click to select) :
Transcript text: Suppose that the total fixed cost for a particular competitive firm is $\$ 3$. The marginal cost for the first unit produced is $\$ 8$ and decreases by $\$ 2$ for each of the next two units produced. Thereafter, marginal cost increases by $\$ 2$ for each additional unit. a. Complete the table below. Note: Round your "Average Variable Cost", "Average Total Cost" answers to 2 decimal places. b. What is the shutdown price? Shutdown price: $\square$ c. If the market price is $\$ 10$, what is the firm's profit maximizing output? What is the firm's total profit or loss? Output: $\square$ Total: (Click to select) : \$ $\square$
failed

Solution

failed
failed

To address the questions, we need to calculate the necessary cost metrics and determine the firm's optimal output and profitability under given conditions.

a. Complete the table

Let's calculate the costs for each unit produced:

  1. Marginal Cost (MC):

    • 1st unit: \$8
    • 2nd unit: \$6 (decreases by \$2)
    • 3rd unit: \$4 (decreases by \$2)
    • 4th unit: \$6 (increases by \$2)
    • 5th unit: \$8 (increases by \$2)
    • 6th unit: \$10 (increases by \$2)

  2. Total Variable Cost (TVC): Sum of marginal costs up to that unit.

    • 1st unit: \$8
    • 2nd unit: \$8 + \$6 = \$14
    • 3rd unit: \$14 + \$4 = \$18
    • 4th unit: \$18 + \$6 = \$24
    • 5th unit: \$24 + \$8 = \$32
    • 6th unit: \$32 + \$10 = \$42

  3. Total Cost (TC): Total Variable Cost + Total Fixed Cost (\$3).

    • 1st unit: \$8 + \$3 = \$11
    • 2nd unit: \$14 + \$3 = \$17
    • 3rd unit: \$18 + \$3 = \$21
    • 4th unit: \$24 + \$3 = \$27
    • 5th unit: \$32 + \$3 = \$35
    • 6th unit: \$42 + \$3 = \$45

  4. Average Variable Cost (AVC): Total Variable Cost / Quantity.

    • 1st unit: \$8 / 1 = \$8.00
    • 2nd unit: \$14 / 2 = \$7.00
    • 3rd unit: \$18 / 3 = \$6.00
    • 4th unit: \$24 / 4 = \$6.00
    • 5th unit: \$32 / 5 = \$6.40
    • 6th unit: \$42 / 6 = \$7.00

  5. Average Total Cost (ATC): Total Cost / Quantity.

    • 1st unit: \$11 / 1 = \$11.00
    • 2nd unit: \$17 / 2 = \$8.50
    • 3rd unit: \$21 / 3 = \$7.00
    • 4th unit: \$27 / 4 = \$6.75
    • 5th unit: \$35 / 5 = \$7.00
    • 6th unit: \$45 / 6 = \$7.50
b. What is the shutdown price?

The shutdown price is the minimum average variable cost. From the calculations above, the minimum AVC is \$6.00.

Shutdown price: \$6.00

c. If the market price is \$10, what is the firm's profit-maximizing output? What is the firm's total profit or loss?

To find the profit-maximizing output, we compare the market price to the marginal cost. The firm will produce up to the point where the price equals marginal cost, as long as the price is above AVC.

  • At 1st unit: MC = \$8, Price = \$10
  • At 2nd unit: MC = \$6, Price = \$10
  • At 3rd unit: MC = \$4, Price = \$10
  • At 4th unit: MC = \$6, Price = \$10
  • At 5th unit: MC = \$8, Price = \$10
  • At 6th unit: MC = \$10, Price = \$10

The firm will produce up to the 6th unit because the price equals the marginal cost at this point.

Output: 6 units

Total Profit or Loss:

Total Revenue (TR) = Price × Quantity = \$10 × 6 = \$60

Total Cost (TC) for 6 units = \$45

Profit = Total Revenue - Total Cost = \$60 - \$45 = \$15

Total: Profit: \$15

In summary, the firm should produce 6 units to maximize profit, resulting in a total profit of \$15.

Was this solution helpful?
failed
Unhelpful
failed
Helpful

Questions asked by other users

failedAnswered
5. Expansion: 6. Compressibility: 7. Diffusion: 8. The container to the right contains 7 gas particles. Represent these same particles under the change of conditions below. 9. 1 slow
failedAnswered
Orthogonal or Perpendicular Vectors choose one 4 points - Which two vectors a and b are orthogonal (perpendicular)? a=(2,-1,3) and b=(0,3,1) a=(-1,-2,0) and b=(2,1,0) a=(0,-1,3) and b=(0,1,1)
failedAnswered
When Jenna behaves poorly at home, her parents use a time-out to remove her from anything in the room that she enjoys. This practice best illustrates positive punishment. negative punishment. child abuse. negative reinforcement.
failedAnswered
Refer to the following incomplete precipitation reaction: Ni2(SO3)3(aq) + (NH4)3PO4(aq) → a. For the reaction above, provide the balanced molecular equation. Be sure to include states of matter and show all work.
failedAnswered
The image contains a geometric shape, specifically a rhombus (or diamond-shaped quadrilateral). The vertices are labeled A, B, C, and D. One of the angles is marked as 35°, and one of the sides is labeled "11x + 11".