Question

A purely competitive firm finds that the market price for its product is $25.00. It has a fixed cost of $100.00 and a variable cost of $10.00 per unit for the first 50 units and then $30.00 per unit for all successive units

Does price exceed average variable cost for the first 50 units? (Click to select)NoYes

Instructions: Round your answer below to two decimal places.

What is the average variable cost for the first 50 units?

Instructions: Round your answers to two decimal places.

What is the average variable cost for the first 100 units?

What is the marginal cost per unit for the first 50 units? $ per unit for the first 50 units.

What is the marginal cost for units 51 and higher? $ per unit for subsequent units.

For each of the first 50 units, does MR exceed MC? (Click to select)YesNo

For the units 51 and higher does MR exceed MC? (Click to select)YesNo

What output level will yield the largest possible profit for this purely competitive firm?

Producing units will maximize profit.

Answer 1

Answer:

1) Does price exceed average variable cost for the first 50 units? YES

2) the average variable cost for the first 50 units = $10

3) the average variable cost for the first 100 units = [(50 x $10) + (50 x $30)] / 100 = ($500 + $1,500) / 100 = $2,000 / 100 = $20

4) What is the marginal cost per unit for the first 50 units?

marginal cost = change in cost / change in quantity = $10 / 1 = $10 per unit

5) What is the marginal cost for units 51 and higher? $30 / 1 = $30 per unit

6) For each of the first 50 units, does MR exceed MC? YES

7) For the units 51 and higher does MR exceed MC? NO

8) the firm's total cost when it produces 50 units = $100 (fixed) + $500 (variable cost x 50 units) = $600

firm's total revenue for 50 units = $1,250

Producing 50 units will maximize its profit.