4 Assume that the cost data in the table below are for a pur

4. Assume that the cost data in the table below are for a purely competitive producer: LO3 a. At a product price of $56, will this firm produce in the short run? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? What economic profit or loss will the firm realize per unit of output? Average Average Average Fixed Total Product Cost Variable Total Cost Cost Marginal Cost 0 $60.00 $45.00 $105.00 72.50 60.00 52.50 49.00 47.50 47.14 48.13 50.00 52.50 $45 40 35 30 35 40 45 2 30.00 42.50 20.00 40.00 37.50 37.00 10.00 37.50 38.57 40.63 43.33 46.50 4 15.00 12.00 6 8.57 7.50 6.67 6.00 8 65 10 75

Solution

Given that P=$55

In a perfectly competitive market, profit is maximised at a point where MR=MC. Also, MR=MC=P

P=MC (approx) at Q=8 when MC= $55

b. Total revenue TR=price*quantity

=$56*8

=$448

c. Total cost =ATC*Q

=$48.13*8

= $385.04

d. profit=TR-TC

=$448-$385.04

=$62.96

The firm should keep operating as it is earning positive profit of $62,96