Asked by Sharon Dixon on May 01, 2024
Verified
Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market. Average Average Average Total Fixed Variable Total Marginal Output Cost Cost Cost Cost 1$150.00$25.00$175.00$25.00275.0023.0098.0021.00350.0020.0070.0014.00437.5021.0058.5024.00530.0023.0053.0031.00625.0025.0050.0035.00721.4328.0049.4346.01818.7533.0051.7668.07916.6739.0055.6786.951015.0048.0063.00128.97\begin{array}{ccccc}& \text { Average } & \text { Average } & \text { Average } & \\\text { Total } & \text { Fixed } & \text { Variable } & \text { Total } & \text { Marginal } \\\text { Output } & \text { Cost } & \text { Cost } & \text { Cost } & \text { Cost }\\\hline1 & \$ 150.00 & \$ 25.00 & \$ 175.00 & \$ 25.00 \\2 & 75.00 & 23.00 & 98.00 & 21.00 \\3 & 50.00 & 20.00 & 70.00 & 14.00 \\4 & 37.50 & 21.00 & 58.50 & 24.00 \\5 & 30.00 & 23.00 & 53.00 & 31.00 \\6 & 25.00 & 25.00 & 50.00 & 35.00 \\7 & 21.43 & 28.00 & 49.43 & 46.01 \\8 & 18.75 & 33.00 & 51.76 & 68.07 \\9 & 16.67 & 39.00 & 55.67 & 86.95 \\10 & 15.00 & 48.00 & 63.00 & 128.97\end{array} Total Output 12345678910 Average Fixed Cost $150.0075.0050.0037.5030.0025.0021.4318.7516.6715.00 Average Variable Cost $25.0023.0020.0021.0023.0025.0028.0033.0039.0048.00 Average Total Cost $175.0098.0070.0058.5053.0050.0049.4351.7655.6763.00 Marginal Cost $25.0021.0014.0024.0031.0035.0046.0168.0786.95128.97 Refer to the data.If the market price for this firm's product is $15,it will produce:
A) 0 units at a loss of $150.
B) 3 units at a loss of $168.
C) 3 units at an economic profit of zero.
D) 4 units at a loss of $138.
Market Price
The current price at which a good or service is bought and sold in a market, determined by the interplay of supply and demand.
Purely Competitive Market
A market structure characterized by many buyers and sellers, homogeneous products, and free entry and exit, leading to price being dictated by supply and demand.
Economic Profit
The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, representing surplus value created.
- Discern the conditions prompting a firm to either sustain its manufacturing processes or discontinue them temporarily.
- Analyze the effect of economic returns on the production choices of a business.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
A
Explanation :
Since the market price is $15 and the marginal cost of producing one unit is above $15 for all levels of output, the firm should not produce any units to avoid losses. The firm's lowest average total cost is $15 when it produces six units, but at that level, the marginal cost is $35, which is above the market price. Therefore, the firm should shut down and not produce any units. The total fixed cost of $150 will be a sunk cost and contribute to the firm's losses. Thus, the best choice is to produce 0 units at a loss of $150.
Learning Objectives
- Discern the conditions prompting a firm to either sustain its manufacturing processes or discontinue them temporarily.
- Analyze the effect of economic returns on the production choices of a business.