Reference no: EM1310986
Calculation of level of activity for a given target profit and selling price.
The costs below are for one of many, identical firms in a competitive market.
|
Output
|
Total
|
Total
|
|
|
Fixed
|
Variable
|
|
|
Cost
|
Cost
|
|
0
|
50
|
0
|
|
1
|
50
|
50
|
|
2
|
50
|
78
|
|
3
|
50
|
98
|
|
4
|
50
|
112
|
|
5
|
50
|
130
|
|
6
|
50
|
150
|
|
7
|
50
|
175
|
|
8
|
50
|
204
|
|
9
|
50
|
242
|
|
10
|
50
|
300
|
|
11
|
50
|
385
|
a) Calculate Average Fixed Cost, Average Variable Cost, Average Total Cost, and Marginal Cost.
b) Plot Average Fixed Cost, Average Variable Cost, Average Total Cost, and Marginal Cost.
c) At what level of output is the 'shut down' point?
d) At what level of output would the firms be profit maximizing if the market determined price were $25 per unit?
e) Would the firms enjoy an economic profit or suffer an economic loss at the profit maximizing level of output for a price of $25 per unit? If so, what is the size (in dollars) of the profit or loss?
f) Given the result in part c. above, describe the process that would occur in this market to bring it to a stable, long-run position.
g) Would the firms enjoy an economic profit or suffer an economic loss at the profit maximizing level of output for a price of $38 per unit? If so, what is the size (in dollars) of the profit or loss?