Individual Project 3 - 1 Production and Perfect Competition...

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1 Production and Perfect Competition Production and Perfect Competition Marquetta Nixon Microeconomics Professor Grace O. Onodipe Date: Sept. 8, 2011 Due Date: Sept. 11, 2011 1
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2 Production and Perfect Competition In the first case (TFC = $1M): TVC = $4.4M ($4M for wages (50,000 workers x $80 per worker) plus $400,000 other variable inputs AVC = $22 (TVC of $4.4M divided by 200,000 units) ATC = $27 (TVC $4.4M + TFC $1M divided by 200,000 units) Worker productivity = 4 (200,000 units divided by 50,000 workers) Profit/Loss = $400,000 loss (total revenue of 200,000 units times $25 price = $5M minus total cost of $5.4M (total cost can be calculated either by taking ATC times 200,000 units or by taking TVC plus TFC) In the second case (TFC = $3M): TVC unchanged at $4.4M AVC unchanged at $22 ATC = $37 ($4.4M TVC plus $3M TFC divided by 200,000 units) Worker productivity unchanged at 4 Profit/Loss = $2.4M loss (total revenue remains at $5M; total cost = $7.4M) The shutdown rule isn't that if a firm can cover total variable costs at some
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This note was uploaded on 09/24/2011 for the course BUSN 105 taught by Professor Markw.preising during the Spring '10 term at American InterContinental University.

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Individual Project 3 - 1 Production and Perfect Competition...

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