Answer the question on the basis of the following cost data

Answer the question on the basis of the following cost data for a purely competitive seller: ?Refer to the data. Given the $75 product price, at its optimal output the firm will:

A. realize a $25 economic profit.

B. realize a $30 economic profit.

C. incur a $25 loss.

D. realize a $30 loss.

Total Total Total Fixed Variable Tota Output Cost Cost $50 OutputCost utcostCost 50o 50 50 50 50 50 50 120 170 200 70 120 150 220 300 390 1 440

Solution

B. realize a $30 economic profit.

the company will continue to produce till the level it has price higher than the variable cost per unit or we can say till the production the company is able to recover at least variable costs.

so if you see the company say variable cost as follows:

1 unit = 70

2nd unit = 50

3 unit = 30

4 unit = 70

5 unit = 80

6 unit= 90

as we have price $75, the company will produce 4 units as variable cost < price

so at that level the revenues will be = 4*75 = $300

costs = 270

profit = 300-270 = 30