Question

Q-1: Sunrise Juice Company sells its output in a perfectly competitive market. The firm's total cost...

Q-1: Sunrise Juice Company sells its output in a perfectly competitive market. The firm's total cost function is given in the following schedule:

Output

Total Cost

Marginal Cost

Average Total

(Units)

($)

($/unit)

Cost ($/unit)

0

50

--

--

10

120

7=(120-50)/(10-0)

12=(120-10)

20

170

?

?

30

210

?

?

40

260

?

?

50

330

?

?

60

430

?

?

Total costs include a "normal" return on the time (labor services) and capital that the owner has invested in the firm. The prevailing market price is $7 per unit.

(a) Prepare (i) marginal cost and (ii) average total cost schedules for the firm.

(b) What is the firm's profit maximizing output level?

(c) Is the industry in long-run equilibrium? Justify your answer. Hint: think about the condition of long-run equilibrium: P=MR=MC=AC)

Homework Answers

Answer #1

(a)

Output(units) Total Cost($) Marginal Cost($/unit) Average Total Cost($/unit) TR ($) = $7*Q Profit($) = TR - TC
0 50 -- -- 0 -50
10 120 7=(120-50)/(10-0) 12=(120-10) 70 -50
20 170 5 8.50 140 -30
30 210 4 7.00 210 0
40 260 5 6.50 280 20
50 330 7 6.60 350 20
60 430 10 7.17 420 -10

(b) The profit maximizing condition is P = MC. It is seen from the table the profit maximizing level of output is 50.

(c) No, the industry is not in long run equlibrium. Because the firm's Fixed cost = $50. But in long run all the costs are variable. There should no be any fixed cost. Again the condition P=MR=MC=AC is not satisfied at the profit maximizing level of output. And we know in the long run firm earns zero economic profit.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1) A perfectly competitive firm's short-run supply curve is its: A. average variable cost curve above...
1) A perfectly competitive firm's short-run supply curve is its: A. average variable cost curve above the marginal cost curve. B. marginal cost curve above the average fixed cost curve. C. marginal cost curve above the average total cost curve. D. marginal cost curve above the average variable cost curve. 2)Economic Profit A. (per unit) is price minus average variable cost. B. is correctly described by all of these. C. as a total amount, is (P - ATC) times quantity....
A firm sells its product in a perfectly competitive market where other firms sell an identical...
A firm sells its product in a perfectly competitive market where other firms sell an identical product at a price of $120 per unit. The firm's total cost is c(q) = 2500 + q2. (a) How much output should the firm produce in the short-run? (b) If all the other competitors in the market have the same cost function, what would you expect to happen to the price of the output in the long-run? Explain your answer clearly and, if...
The long run cost function for each (identical) firm in a perfectly competitive market is  C(q) =...
The long run cost function for each (identical) firm in a perfectly competitive market is  C(q) = q1.5 + 16q0.5 with long run marginal cost given by LMC = 1.5q0.5 + 8q-0.5, where  q is a firm’s output. The market demand curve is  Q = 1600 – 2p, where Q  is the total output of all firms and p  is the price of output. (a) Find the long run average cost curve for the firm. Find the price of output and the amount of output...
3: For each (identical) firm in a perfectly competitive market the long-run cost function is C(q)...
3: For each (identical) firm in a perfectly competitive market the long-run cost function is C(q) = q1.5 + 16q0.5 with long run marginal cost being LMC = 1.5q0.5 + 8q-0.5, where q = firm’s output. Market demand curve: Q = 1600 – 2p, where Q = total output of all firms, and p = price of output. (a) For the firm find the long run average cost curve , as well as the price of output and the amount...
a) Assume a perfectly competitive firm’s total cost (TC) for different levels of output Q is...
a) Assume a perfectly competitive firm’s total cost (TC) for different levels of output Q is given by: Q- a) Assume a perfectly competitive firm’s total cost (TC) for different levels of output Q is given by: Q   TC 0     50 1    100 2    140 3    170 4    190 5   210 6    230 7    260 8    300 9    350 10 410 At a price of $35 how many units will be produced in the short run? At this price how...
Consider the following perfectly competitive market. Let x represent units of output. Suppose that the level...
Consider the following perfectly competitive market. Let x represent units of output. Suppose that the level of costs incurred by a firm are represented by the following functions: Marginal Cost = 2x + 4 Average Total Cost = x + 4 + (36 / x) (a) Suppose the market price is equal to $12 (i) Determine the level of marginal revenue earned by the firm for each additional unit of output. (ii) Determine the level of profit-maximizing output when the...
Question 3 The long run cost function for each (identical) firm in a perfectly competitive market...
Question 3 The long run cost function for each (identical) firm in a perfectly competitive market is  C(q) = q1.5 + 16q0.5 with long run marginal cost given by LMC = 1.5q0.5 + 8q-0.5, where  q is a firm’s output. The market demand curve is  Q = 1600 – 2p, where Q  is the total output of all firms and p  is the price of output. (a) Find the long run average cost curve for the firm. Find the price of output and the amount...
Assume that the market for fertilizer is perfectly competitive. Firms in the market are producing output...
Assume that the market for fertilizer is perfectly competitive. Firms in the market are producing output but they are experiencing economic losses. Explain how ATC, AVC and MC are related (Note: the relationship of these cost curves is same whether there is loss or profit). Explain how the price of fertilizer compares to the ATC, AVC and MC of producing fertilizer Draw two graphs side by side illustrating the present situation for the single firm and the entire market. Cleary...
1.A perfectly competitive firm sells 15 units of output at the going market price of $10....
1.A perfectly competitive firm sells 15 units of output at the going market price of $10. Suppose its average fixed cost is $15 and its average variable cost is $8. Its contribution margin (i.e., contribution to fixed cost) is 2. At the point at which P=MC, suppose that a perfectly competitive firm's MC = $100, its AVC = $80 and its AC = $110. This firm should Select one: a. continue operating in the short run. b. shut down immediately....
Let’s assume a wheat flour factory is perfectly competitive and the given price of wheat per...
Let’s assume a wheat flour factory is perfectly competitive and the given price of wheat per kg is $20. State the condition and identify when the firm maximizes profit. Also, calculate profit at the profit maximizing level of output. Output of Wheat (kg) Total Cost ($/kg) Total Revenue Marginal Revenue Average Revenue Marginal Cost 0 20 1 32 2 42 3 47 4 60 5 80 6 120 The market for widgets are perfectly competitive. TC = 2q2 + 5q...