Asked by Megan Olsen on Jul 22, 2024
Verified
Answer the question on the basis of the following cost data for a purely competitive seller: Output Total Cost 0$50190212031404170521062607330\begin{array} { c c c } \text { Output } & & \text { Total Cost } \\\hline0 & & \$ 50 \\1 & & 90 \\2 & & 120 \\3 & & 140 \\4 & & 170 \\5 & & 210 \\6 & & 260 \\7 & & 330\end{array} Output 01234567 Total Cost $5090120140170210260330 Refer to the data.If product price is $45,the firm will:
A) shut down.
B) produce 4 units and realize a $120 economic profit.
C) produce 5 units and realize a $15 economic profit.
D) produce 6 units and realize a $100 economic profit.
Economic Profit
The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, representing the excess over the firm's opportunity costs.
Purely Competitive Seller
A market participant who has no control over the price of the product it sells because the market sets the price through supply and demand.
Total Cost
The sum of fixed and variable costs used in producing goods or services.
- Examine the impact of economic profits on a firm’s production decisions.
- Identify the conditions under which a firm should continue production or shut down in the short run.
Verified Answer
ZA
zayrehan ashleighJul 24, 2024
Final Answer :
C
Explanation :
To determine the profit-maximizing level of output, the firm should find the output level at which marginal cost equals marginal revenue. In perfect competition, the marginal revenue is equal to the product price. At the product price of $45, the MC equals MR at the output level of 5 units. At this point, the firm's TC is $210, and the total revenue is $225. Therefore, the firm's economic profit is $15. Any level of output other than 5 units would result in a lower profit, or even a loss.
Learning Objectives
- Examine the impact of economic profits on a firm’s production decisions.
- Identify the conditions under which a firm should continue production or shut down in the short run.