Question

# Output Fixed Cost Variable Cost Total Cost Average Fixed Cost Average Variable Cost Average Total Cost...

 Output Fixed Cost Variable Cost Total Cost Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 0.00 10.00 - 10.00 - - - - 1.00 10.00 10.00 20.00 10.00 10.00 20.00 10.00 2.00 10.00 18.00 28.00 5.00 9.00 14.00 18.00 3.00 10.00 23.00 33.00 3.33 7.66 11.00 5.00 4.00 10.00 33.00 43.00 2.50 8.25 10.75 10.00 5.00 10.00 48.00 58.00 2.00 9.40 11.60 15.00 6.00 10.00 68.00 78.00 1.66 11.33 13.00 20.00 7.00 10.00 98.00 108.00 1.42 14.00 15.42 30.00 8.00 10.00 148.00 158.00 1.25 18.50 19.75 50.00
1. Assume the company, above, is in a Perfect Competition Industry: if a product is sold at \$200, what will the profits be and how many will be sold at that price? Can the company raise the price?
2. Assume the company, above, is in a Perfect Competition Industry: What would the profit situation be at a price of \$300? How many should be sold at that price?
3. Assume the company, above, is in a Perfect Competition Industry: What would the profit situation be at a price of \$100? How many should be sold at that price?

In perfect competition, P >= MC.

(I) When P = 200, Q = 8 since this is the maximum output for which price is higher than MC.

Profit = Q x (P - ATC) = 8 x (200 - 19.75) = 8 x 180.25 = 1442

So firm will earn positive profit.

In perfect competition, each firm is a price taker and cannot set their own price. So firm cannot increase price.

(II) When P = 300, Q = 8 since this is the maximum output for which price is higher than MC.

Profit = Q x (P - ATC) = 8 x (300 - 19.75) = 8 x 280.25 = 2242

So firm will earn positive profit.

(III) When P = 100, Q = 8 since this is the maximum output for which price is higher than MC.

Profit = Q x (P - ATC) = 8 x (100 - 19.75) = 8 x 80.25 = 642

So firm will earn positive profit.

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