Question

Suppose a perfectly competitive firm in the short-run is currently producing an output level of 20,000...

Suppose a perfectly competitive firm in the short-run is currently producing an output level of 20,000 units, charging a price per unit of $2. The firm incurs variable costs of $60,000 in producing this level of output. It also has fixed costs of $75,000.

a) Calculate the economic profit (or loss) from the firm producing and selling these 20,000 units of output. Show all your work.

b) Calculate the economic profit (or loss) from the firm shutting down and producing zero units.  

c) Given the correct answers to both a) and b), should this firm maintain production, should it shut down, or should it exit the industry? Why?

d) How would your answer change (if it were to change) if the firm’s fixed costs were larger? Explain.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Determine whether the following perfectly competitive firm should produce output in the short run or temporarily...
Determine whether the following perfectly competitive firm should produce output in the short run or temporarily shut down, given: P = $350 TC = 3,250 + 100Q + 2Q2 where, Q is units produced per month If the firm does not operate, it will lose its $3,250 of fixed costs. What profit or loss will the firm have if it operates where MR = SMC? Does this profit or loss check with your decision on whether to produce or temporarily...
A perfectly competitive firm is currently producing 10 units of output. Its current total cost is...
A perfectly competitive firm is currently producing 10 units of output. Its current total cost is 85 dollars and its cost curves have the usual shapes. If the firm increased output to 12 units, total cost would rise to 87 dollars. The firm’s fixed cost is 15 dollars. Is Q = 10 the short-run profit-maximizing level of output for this firm? Why or why not? (Explain and show work)
A. Demonstrate graphically and explain verbally where the level of output should be when a perfectly...
A. Demonstrate graphically and explain verbally where the level of output should be when a perfectly competitive firm is earning a positive economic profit. Be sure to label the profit-maximizing level of output and shade in the area that represents profit. B. Show and explain the situation in which a profit-maximizing, perfectly competitive firm is earning a negative profit and chooses to continue to produce in the short-run. C. Show and explain how B would change if the firm chose...
1.) In the short run, a perfectly competitive firm A. can change only its fixed inputs....
1.) In the short run, a perfectly competitive firm A. can change only its fixed inputs. B. can make only zero economic profit. C. can vary all its inputs. D. produces the level of output that sets the average total cost equal to the market price. E. can possibly make an economic profit or possibly incur an economic loss.
10. The total costs of a firm operating in perfectly competitive markets are described by the...
10. The total costs of a firm operating in perfectly competitive markets are described by the function C(y) = y2+15y+40, where y denotes the quantity (units) of output Y produced by the firm. The market price per unit of output is 25 euros. Find the profit maximizing output level, the firms profits (or loss) and explain briefly (in max 1 or 2 sentences) whether it would be better for this firm to continue producing or to shut down its production...
At the current level of output for a perfectly competitive firm, the following data exist: Price...
At the current level of output for a perfectly competitive firm, the following data exist: Price = $21 Marginal cost = $5 Average variable cost = $9 Average total cost = $12 What should this firm do? The firm should shut down The firm should lower the price The firm should decrease output The firm should increase output The firm should keep the same level of output
Consider a perfectly competitive firm currently producing X1 units of a good. Now suppose that the...
Consider a perfectly competitive firm currently producing X1 units of a good. Now suppose that the government levies a tax on economic profits of the firm (for example, 10% of its profits are taxed). If the firm’s after-tax production level is X2, compare X1 and X2. How much of this tax is paid by the consumers?
Consider a perfectly competitive firm currently producing X1 units of a good. Now suppose that the...
Consider a perfectly competitive firm currently producing X1 units of a good. Now suppose that the government levies a tax on economic profits of the firm (for example, 10% of its profits are taxed). If the firm’s after-tax production level is X2, compare X1 and X2. How much of this tax is paid by the consumers?
Consider a perfectly competitive firm currently producing X1 units of a good. Now suppose that the...
Consider a perfectly competitive firm currently producing X1 units of a good. Now suppose that the government levies a tax on economic profits of the firm (for example, 10% of its profits are taxed). If the firm’s after-tax production level is X2, compare X1 and X2. How much of this tax is paid by the consumers?
Assume the following is true for a perfectly competitive firm. At the output where MR =...
Assume the following is true for a perfectly competitive firm. At the output where MR = MC, ATC > P. Based on this information, which of the following is correct? 1. More information is needed to know if the firm is in the short run or long run and if it should shut down. 2. The firm is definitely in the short run and should shut down. 3. The firm is definitely in the long run and should shut down....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT