For each firm units Instructions Round your answers to 2 dec

For each firm?    units.           

Instructions: Round your answers to 2 decimal places. Enter positive values for profit or loss.

What will profit or loss be per unit?   (Click to select)  Loss  Profit  per unit = $  .     

Per firm? $  .     

Will this industry expand or contract in the long run?   (Click to select)  Expand  Contract  .

Assume that the following cost data are for a purely competitive producer Average Total Marginal Cost Total Product Average Fixed Average Cost Variable Cost Cost 0.00 $ 45.00 S 42.50$ 40.00$ 37.50$ 37.00 $ 37.50$ 38.57 S 40.63 S 43.33 S 46.50$ 0.00 05.00 S 72.50$ 60.00 $ 52.50$ 49.00$ 47.50$ 47.14S$ 48.13 $ 50.00 $ 52.50$ na na 60.00 $ 30.00 $ 20.00$ 15.00 $ 12.00 $ 10.00 $ 8.57S 7.50$ 6.67 S 6.00 $ 45.00 40.00 35.00 30.00 35.00 40.00 45.00 55.00 65.00 75.00 3 4 10 Answer the questions in the first column in the table below for the price listed at the top of each of the other three columns

Solution

From the table we see that MC is the supply schedule that begins with the minimum of AVC which is 37. Hence below a price of $37 no firm will supply any unit. This draws the supply schedule for one firm. For 1500 firms, just multiply the schedule for a single firm by 1500.

For profit, use (P - AC)*Q and find that for a price higher than $47, there are profits, otherwise not.

Demand and supply are equal to each other at 10500 units when the price is $47 and marginal cost is $45.

Equilibrium price = $47

Equilibrium quantity of industry = 10500.

Quantity by 1 firm = 7 units.

Loss per unit = (P - ATC) = 47 - 47.14 = 0.14

Loss per firm = 0.14 x 7 = 0.98

This industry will contract in long run as there are losses in short run.

Price	Qs by single firm	Profit/loss (P - AC)*Q	Qs by 1500 firms	Qd
22	0	-60	0	19000
27	0	-60	0	17000
32	0	-60	0	15000
37	5	-60	7500	13500
42	6	-33	9000	12000
47	7	-0.98	10500	10500
57	8	70.96	12000	9500