Isis Avila- Economics-Assignment 3.docx - Isis Avila 2018118135 Principle of Economics Assignment#3 Jose Puga 1 Ajax is a competitive firm operating

Isis Avila- Economics-Assignment 3.docx - Isis Avila...

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Isis Avila 2018118135 Principle of Economics Assignment #3 Jose Puga 5/5/2020
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1. Ajax is a competitive firm operating under the following condition: price of output is $5, the profit maximizing level of output is 20,000 units of output and the total cost (full economic cost) of producing 20,000 units is $120,000. The firm’s only fixed factor of production is a 300,000 stock of capital (a building). If the interest rate available on comparable risks is 10 percent, should this firm shut down immediately in short run? Explain your answer. Unit x Price= TR 200,000 x 5.00= 100,000 Opportunity Cost x Interest Rate 300,000 x 10%= 30,000 Variable Cost of Production = 120,000-30,000= 90,000 Total Revenue- Variable Cost 100,000-90,000= 10,000 Due to the revenue exceeding the variable cost of production the firm should continue operations. If the revenue didn’t exceed the variable cost of production, the firm would’ve shut
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