Costs and Profit

Costs and Profit

I. Consider the following data for a firm that is a perfect competitor in the market for its product. Complete the table below.

qty of total total total average average average marginal

output cost fixed cost variable cost total cost fixed cost variable cost cost

060

1105

2145

3180

4210

5245

6285

7330

8385

9450

10525

II. Suppose the product price is $32. Explain why this firm will not produce in the short run.

III. Suppose the product price is $38.

a. Explain why this firm will produce in the short run.

b. What is the profit-maximizing output level? ______

c. What is the total profit or loss? ______

IV. Suppose the product price is $41.

a. What is the profit-maximizing output level? ______

b. What is the total profit or loss? ______

V. Suppose the product price is $46.

a. What is the profit-maximizing output level? ______

b. What is the total profit or loss? ______

VI. Suppose the product price is $56.

a. What is the profit-maximizing output level? ______

b. What is the total profit or loss? ______

VII. Suppose the product price is $66.

a. What is the profit-maximizing output level? ______

b. What is the total profit or loss? ______

VIII. Suppose the industry consists of 1500 firms with the same cost data as provided above. Use the information you calculated to complete the table below.

price qty supplied by one firm qty supplied by 1500 firms

32

38

41

46

56

66

IX. Suppose the market demand schedule is as indicated in the table below.

total qty

price demanded

3215,000

3813,500

4112,000

4610,500

569,500

668,000

a. What will the equilibrium price be? _______

b. What will be the equilibrium output level for the industry? __________

c. What will be the profit or loss per firm? _______

d. In the long run, will the industry expand, contract, or remain the same size? ______________