Suppose you supply good X in a perfectly competitive market. To sell good X you rent a building for $30,000 per month and rent a machine for $20,000 per month. Those are your fixed costs. The variable cost per month is given in the table below: Quantity of good X Variable Cost (VC) Average Variable Cost (AVC) Average Total Cost (ATC) Marginal Cost (MC) 0 $0 1,000 $5,000 2,000 $8,000 3,000 $9,000 4,000 $14,000 5,000 $20,000 6,000 $33,000 7,000 $49,000 8,000 $72,000 9,000 $99,000 10,000 $150,000 a) Use blank spaces in the table above to calculate your average variable cost, average total cost, and marginal cost for each quantity of good X. b) There is free entry into this market, and anyone who enters will face the same costs as you do. If current market price of one unit of X is $16. Calculate your total profit? $ _______ c) There is free entry into this market, what is the long-run price of good X? d) What is the break-even price (Where economic profit = $0)? Briefly explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose you supply good X in a perfectly competitive market. To sell good X you rent a building for $30,000 per month and rent a machine for $20,000 per month. Those are your fixed costs. The variable cost per month is given in the table below:

Quantity of good X	Variable Cost (VC)	Average Variable Cost (AVC)	Average Total Cost (ATC)	Marginal Cost (MC)
0	$0
1,000	$5,000
2,000	$8,000
3,000	$9,000
4,000	$14,000
5,000	$20,000
6,000	$33,000
7,000	$49,000
8,000	$72,000
9,000	$99,000
10,000	$150,000

a) Use blank spaces in the table above to calculate your average variable cost, average total cost, and marginal cost for each quantity of good X.

b) There is free entry into this market, and anyone who enters will face the same costs as you do. If current market price of one unit of X is $16. Calculate your total profit? $ _______

c) There is free entry into this market, what is the long-run price of good X?

d) What is the break-even price (Where economic profit = $0)? Briefly explain.

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