# 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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