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Home/ Questions/Assume that the following cost data are for a purely competitive producer
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kttutoria
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kttutoriaExpert
Asked: April 10, 20222022-04-10T07:46:57+00:00 2022-04-10T07:46:57+00:00In: Economics

Assume that the following cost data are for a purely competitive producer

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Assume that the following cost data are for a purely competitive producer: Average Fixed Average Average Total...

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Assume that the following cost data are for a purely competitive producer: Average Fixed Average Average Total...

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Assume that the following cost data are for a purely competitive producer: Average Fixed Average Average Total...

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Assume that the following cost data are for a purely competitive producer: Average Fixed Average Average Total...

Assume that the following cost data are for a purely competitive producer.

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:

  • Will this firm produce in the short run?
  • What will be the profit-maximizing or loss-minimizing output?
  • What economic profit or loss will the firm realize per unit of output?

d. In the table below, complete the shot-run supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3)

e. Now assume that there are 1,500 identical firms in this competitive industry, that is, there are 1,500 films, each of which has the cost data shown in the table. Complete the industry supply schedule (column 4 In the table above) 

f. Suppose the market demand data for the product are as follows: 

  • What will be the equilibrium price?
  • What will be the equilibrium output for the industry units
  • For each firm?

♦ Relevant knowledge
A firm that is competitive is one that sells its goods and services on the market. A competitive company can be explained through the following traits:

  • There is a lot of competition
  • It is a huge market for buyers, and many sellers with the same characteristics.
  • Every firm in the market is not in possession of market ability
  • Each firm on market are taker
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    kttutoria Expert
    2022-04-17T04:53:07+00:00Added an answer on April 17, 2022 at 4:53 am

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  2. tonytutoria
    2022-04-10T07:46:59+00:00Added an answer on April 10, 2022 at 7:46 am

    a)

    The price is $68,

    An extremely competitive firm can increase its output as long as P>MC/P=MC is higher.

    It is evident that MC is lower than Q=9’s price, but MC>P Q=10.

    So, optimal output is 9 units.

    At this output level AVC<p. so,="" firm="" will="" continue="" to="" produce="" in="" short="" run.

    As discussed above, profit maximizing or loss minimizing
    output is 9 units per firm.

    Economic profit=(P-ATC)*Q=(68-50)*9=$162

    b)

    The price is $43,

    An extremely competitive firm can increase its output as long as P>MC/P=MC is higher.

    It is evident that MC is lower than Q=6’s price, but MC>P Q=7.

    So, optimal output is 6 units.

    At this output level AVC<p. so,="" firm="" will="" continue="" to="" produce="" in="" short="" run.

    As discussed above, profit maximizing or loss minimizing
    output is 6 units per firm.

    Economic profit=(P-ATC)*Q=(43-47.50)*6=-$27 (Its a
    loss)

    c)

    The price is $34,

    We can see that AVC>P for each output level. So, firm
    will shut down in short run.

    Hence, output of a firm=0

    Economic Profit=Total Revenue at nil output-Total Cost
    at nil output=0-60=-$60 (Its a loss)

    (Loss equals fixed cost in the event of shutting down)

    d-e)

    For every output level, we can see that AVC>34. In this case, the firm will close down if the price is less than 34. Fixed cost will equal the loss.

    Part a and b describe how a firm can select the best output to price higher prices. We can develop following schedule.

    Price Q = Quantity of services provided by a single firm Profit (+)/Loss (-) Qs=Quantity supplied by 1500 firms =1500*Q
    24 0 -60.00 0
    29 0 -60.00 0
    34 0 -60.00 0
    41 6 (41-47.50)*8=-39.00 9000
    46 7 (46-47.14)*7=-7.98 10500
    57 8 (57-48.13)*8=70.96 12000
    68 9 (68-50)*9=162.00 13500

    f)

    It is evident that for a price of $46, the quantity required is equal to the quantity provided. 10500. So,

    Equilibrium price=$46

    Equilibrium output for the industry=10500
    units

    For each firm=7 units

    Profit per unit=(P-ATC)=46-47.14=-$1.14

    (Its a loss of $1.14 per unit)

    Per firm=(P-ATC)*Q=(46-47.14)*7=-$7.98


    (Its a loss of $7.98 per firm)

    In the short term, firm is losing money. The firm will exit the industry. So,

    Industry will contract in the long run.
    (Contract)

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