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Question

Suppose the wage rate is $10 per hour and the fixed cost is $20. The production information is as

follows:


Labour (hour) Output

0 0

1 2

2 4

3 6

4 8


Suppose the market is perfectly competitive, and the market price is $10.

a. Find out the profit maximizing output level at short run.

b. Specify the amount of economic profit or loss at the profit maximizing output level in the short run.

c. What will be the price and quantity for the long run equilibrium?

d. Make diagrams to answer your questions.

Top Answer

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image_2020_02_12T04_57_04_470Z.png

Labour
Output
Variable cost
Marginal
Total revenue
[wage X L)
Total cost
Total
cost
0
( price X output)
0
(VC + FC)
profits
1
0
2
20
10
-20
10
2
20
4
30
20
-10
10
3
40
6
30
40
0
10
4
60
8
50
40
10...

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