Answer to Question #45404 in Economics of Enterprise for Tebr

Question #45404
Assuming that a firm in a perfect competitive industry has the following total costs schedule: Output Total Cost 10 110 15 150 20 180 25 225 30 300 35 385 40 480 a. Calculate a marginal cost and an average cost schedule for the firm b. If the prevailing market price is $17 per unit, how many units will be produced and sold? What are profits per unit? What are total profits? c. Is the industry in long0run equilibrium at this price?
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Expert's answer
2014-09-05T12:27:28-0400
a. Calculate a marginal cost and an average cost schedule for the firm
ATC = TC/Q, MC = deltaTC/deltaQ
Q TC MC ATC
10 110 - -
15 150 8 10
20 180 6 9
25 225 9 9
30 300 15 10
35 385 17 11
40 480 19 12
b. If the prevailing market price is $17 per unit, 35 units will be produced and sold, because in equilibrium MC = MR = P = 17. Profits per unit are: AP = P - ATC = 17 - 11 = $6. Total profits are TP = (P - ATC)*Q = (17 - 11)*35 = $210.
c. The industry is not in long-run equilibrium at this price, because the firms earn profits. And in the long-run they will earn zero profits.

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