- The following table gives short-run and long-run total costs for various levels of output for a perfectly competitive firm:
Note: AVC is Average Variable Cost
TR is Total Revenue
SRTC is Short Run Total Cost
SRTC = FC + VC (Total Cost = Fixed Cost + Variable Costs)
Please see background material for additional formulas.
- Suppose the fixed cost (FC) of production is $350 and Price (P) is $55, complete the table above. (Cut and paste the table into a separate document).
- Suppose you are producing 2 units of output (Q = 2), if you want to produce one extra unit of output (Q = 3), what would be the marginal cost? (Show your work.)
- If the market price is given as $55, how much output will the perfectly competitive firm produce to maximize profits? (Show your work.)
- Calculate the profit or loss. (Show your work.)
- Should the firm always shut down in the short run when it experiences a loss? Explain.
Use concepts from the modular background readings as well as any good-quality resources you can find. Be sure to cite all sources within the text and provide a reference list at the end of the paper.
Format: double-spaced and typed.
The following items will be assessed in particular:
- Show all work for numerical problems.
- Your ability to understand costs and how firms make decisions.
- Some in-text references to the modular background material.
- The assignment should address each element of the assignment. Remember to support your answers with solid references including the Case readings.