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Answer on Economics of Enterprise Question 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?
Expert's answer
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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