Question

# 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 many units will be produced in the long run?

TC- 50,100

Marginal cost (MC) = Change in TC / Change in Q

 Q TC MC TR = \$35 x Q Profit = TR - TC 0 50 0 -50 1 100 50 35 -65 2 140 40 70 -70 3 170 30 105 -65 4 190 20 140 -50 5 210 20 175 -35 6 230 20 210 -20 7 260 30 245 -15 8 300 40 280 -20 9 350 50 315 -35 10 410 60 350 -60

A perfectly competitive firm maximizes proft by equating Price with MC. From above table,

When Q = 7, Price = \$35 and MC = \$30, and when Q = 8, Price = \$35 and MC = \$40. Since the firm will produce when Price > MC, the corresponding short-run output is 7 units with P = \$35 and MC = \$30.

When Price = \$35, firm is making negative profit (Loss) at every output level, so nothing will be produced in long run since firm will exit the market.

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