echw5 - Homework 5 Wednesday October 8, 2008 Deniz Gorgun...

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Homework 5 Wednesday October 8, 2008 Deniz Gorgun 1.Assume a single firm in a purely competitive industry has variable costs as indicated in the following table in column 2. Complete the table and answer the questions. Total Total var. cost($) cost($) AFC($) AVC($) ATC($) MC($) $0.0 $40.0 $40.0 $0.0 $0.0 $55.0 $95.0 $40.0 $55.0 $95.0 $55.0 $75.0 $95.0 $20.0 $37.5 $47.5 $0.0 $90.0 $103.3 $13.3 $30.0 $34.4 $8.3 $110.0 $120.0 $10.0 $27.5 $30.0 $16.7 $135.0 $143.0 $8.0 $27.0 $28.6 $23.0 $170.0 $176.7 $6.7 $28.3 $29.4 $33.7 $220.0 $225.7 $5.7 $31.4 $32.2 $49.0 $290.0 $295.0 $5.0 $36.3 $36.9 $69.3 (a) At a product price of $52, will this firm produce in the short run? Explain. What will its profit or loss be? - Yes, the company will produce in the short run, because the profits cover the marginal costs. In the perfect competition, the profits will be $17.0 per jeans at the 5 th and 6 th units. The total profits are maximized at this price and with the production of 7 units. (b) At a product price of $28, will this firm produce in the short run? Explain. What will its profit or loss be? - The company can produce up to 5 units, and then the marginal cost outcomes the profits, so that the company cannot produce any more. The initial (fixed) cost causes a loss as well. (c)
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echw5 - Homework 5 Wednesday October 8, 2008 Deniz Gorgun...

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