01 Jun Question 1 A perfectly competitive firm has fixed costs of $30 and total cost
Question
1 A perfectly competitive firm has fixed costs of $30 and total costs as indicated in the table below.
Output
Total
Fixed
Cost
Total
variable
Cost
Total Cost
0
1
2
3
4
5
6
7
8
9
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
30
39
47
54
60
67
75
84
95
108
10
Average
Fixed Cost
123
a. Fill in the missing values in the table.
b. Graph total fixed cost, total variable cost, and total cost. (Be sure tounderstand what is behind the shape of each of the curves.)
c. Graph AFC, AVC, ATC, and MC. Mark the two key points as discussed in class. Explainin your own words why the MC curve intersects both the AVC and ATC curves at theirminimums.
d. What will happen to the AVC, ATC, and MC if the fixed cost increases by 40.
e. How much will the firm produce if the market price that it faces is $13.5. Will the firmmake profits or losses? How much?
f. Answer the questions in part (e) is the price was $8.5.
g. Answer the questions in part (e) is the price was $6.
h. The following table represents the market demand schedule for the industry.
Price
Supply by
the Firm
Profit/Loss
Industry
Supply
3
4
6
8.5
11
13.5
15
Market
Demand
1000
800
700
600
300
200
50
h.1.Fill in the individual supply schedule for the firm
h.2.Calculate the Profit or Loss for the firm and fill column 3 of the table
h.3.Fill in column 4 of the table if there are 100 identical firms in the industry.
h.4. Use column 5 from the table to determine what will be the equilibrium price forthe industry. What will be the quantity supplied by each firm in the short run?
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