Answered: Assume that a firm in a competitive…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Assume that a firm in a competitive market faces the following cost information. If the market price for this firm's product is $40, calculate the profit maximizing level of output for this firm using marginal analysis. It may help to create your own cost table and fill in columns for Marginal Cost and Average Total Cost based on the Total Cost information below.

What is the equilibrium price and quantity given this information on demand in the market?

Is each firm making a profit or loss?

What is the amount of that profit or loss? What do you predict will happen over the long run?

Table showing Market Demand
Price
Quantity Demanded Quantity Supplied
$90
20
$65
30
$45
40
$35
50
$25
60
$15
70
$10
80
%24

Table showing Total Cost and Quantity of Output
Output
Total Cost
Marginal Cost
Average Total
100
1
120
20
120
2
135
15
67.5
3
145
10
48.3
160
15
40
5
180
20
36
6
205
25
34.2
7
240
35
34.3
8
285
45
35.6
9
350
65
38.9
10
440
90
44
4-

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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