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Eric Stevanus - 2201756600 - LA28: Assignment 2: Part A

The document analyzes the costs of production for a purely competitive firm producing different levels of output. It provides: 1) A table showing the firm's total fixed costs, total variable costs, and total costs at different output levels. 2) Calculations of average fixed cost, average variable cost, average total cost, and marginal cost at an output of 5 units. 3) The optimal output level for the firm if the product price is $75. Graphs are also presented showing the firm's marginal cost and average total cost curves intersecting with the market price, indicating losses in the short run. In the long run, less efficient firms would exit and prices may rise until normal profits are achieved. Technological

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82 views

Eric Stevanus - 2201756600 - LA28: Assignment 2: Part A

The document analyzes the costs of production for a purely competitive firm producing different levels of output. It provides: 1) A table showing the firm's total fixed costs, total variable costs, and total costs at different output levels. 2) Calculations of average fixed cost, average variable cost, average total cost, and marginal cost at an output of 5 units. 3) The optimal output level for the firm if the product price is $75. Graphs are also presented showing the firm's marginal cost and average total cost curves intersecting with the market price, indicating losses in the short run. In the long run, less efficient firms would exit and prices may rise until normal profits are achieved. Technological

Uploaded by

eric stevanus
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Eric Stevanus – 2201756600 - LA28

Assignment 2:
PART A.
Use the following data table to answer questions a,b,c,d, and d. Answer the next question(s) on
the basis of the following cost data for a purely competitive seller:
T o ta l T o ta l
T o ta l fix e d v a r ia b le T o ta l
p rod u ct cost cost cost
0 $50 $ 0 $ 50
1 50 70 120
2 50 120 170
3 50 150 200
4 50 220 270
5 50 300 350
6 50 390 440

a.what are the above data for?


To analyze the cost production and the right amount of production that maximizes profits
in the short run that are adjusted to the current price of the perfect competition.
b.How much are average fixed cost, average variable cost, and average total cost at 5 units of
output?
Output 5
Average Fixed Cost (AFC) = $50 / 5 = $10
Average Variable Cost (AVC) = $300 / 5 = $60
Average Total Cost(ATC) = $350 / 5 = $70
c. How much is the marginal cost of the fifth unit of output?
Marginal Cost output 5 = Total cost output 5 – Total Cost output 4
= $350 - $270
= $80
d. How many product will the firm produce if product price is $75?
Max Profit = 4 Output
e.Given the $75 product price, how much will the firm at its optimal output?
Revenue = ($75 x 4) - $270
= $30

PART B.
Use the following graphs to answer questions a,b and c.

a.Refer to the above diagrams, which does pertain to a purely competitive firm producing
output q and the industry in which it operates?
Eric Stevanus – 2201756600 - LA28
The diagrams portray short-run equilibrium, but not long-run equilibrium and shows
that the company has a negative profit or has a loss in the short run since average total
cost is higher than the price.
b. Refer to the above diagrams, which pertain to a purely competitive firm producing output q
and the industry in which it operates. What should we expect in the long run?
Firms with less efficiencies to leave the industry, market supply to fall, and product price
to rise until normal profits for those supplier are achieved.
c. Refer to the above diagrams, which pertain to a purely competitive firm producing output q
and the industry in which it operates. What does he predicted long-run adjustment in
this industry might be offset by?
Technological improvement in production methods that lowers average cost and lower
the average total cost and increases efficiencies in producing, therefore increasing
supply curve and make it look like the industry is more attractive than it is before.

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