Answer to Question #124715 in Microeconomics for Zara

Question

1. Cost figures for a hypothetical firm are given in the following table. Use them for the exercises below. The firm is selling in a perfectly competitive market.
OUTPUT FIXED COST AFC VARIABLE COST AVC TOTAL COST ATC MC
1 $50 $30
2 $50 $50
3 $50 $80
4 $50 $120
5 $50 $170

a. Fill in the blank columns.
b. What is the minimum price needed by the firm to break even?
c. What is the shutdown price?
d. At a price of $40, what output level would the firm produce? What would its profits be?

Answer 1

a)

b)

$$Q=\frac {FC}{p-AVC}$$

$$3=\frac {50}{p-27}$$

$$p=43.7$$

c)

$$5=\frac {50}{p-34}$$

$$p=44$$

d) if p=40, then Q=4

$$Profit=TR-TC$$

$$TR=pQ=40\times4=160$$

$$Profit=160-170=-10$$