Answer to Question #109350 in Microeconomics for Hiba Roukaibi

Question

A purely competitive firm finds that the market price for its product is $25.00. It has a fixed cost of $100.00 and a variable cost of $17.50 per unit for the first 50 units and then $30.00 per unit for all successive units.

Instructions: Round your answers to 2 decimal places.

a. Does price equal or exceed average variable cost for the first 50 units? .

What is the average variable cost for the first 50 units? $
.


b. Does price equal or exceed average variable cost for the first 100 units? .

What is the average variable cost for the first 100 units? $
.


c. What is the marginal cost per unit for the first 50 units? $
per unit.

What is the marginal cost for units 51 and higher? $
per unit.


d. For each of the first 50 units, does MR exceed MC? .

What about for units 51 and higher? .


e. What output level will yield the largest possible profit for this purely competitive firm?
units.

Answer 1

a. The price of $25 exceeds average variable cost for the first 50 units. The average variable cost for the first 50 units is $17.5

b.The average variable cost for the first 100 units is ($17.5*50+$30*50)/100=$23.75, so the price of $25 exceeds average variable cost for the first 100 units.

c. The marginal cost per unit for the first 50 units is $17.5

The marginal cost for units 51 and higher is $30.

d. Yes, because MR=P=25>MC(=17.5)

For units 51 and higher MR=P=25<MC(=30)

e. When MC=MR. In our case output level should be 50 units