Calculation of economic profit.

Question

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Answer 1

Question

Chapter 10, Problem 4P

Sub part (a):

To determine

Calculation of economic profit.

Sub part (a):

Expert Solution

Explanation of Solution

Table -1 shows the data for the purely competitive producer

Table -1

Quantity	Average fixed cost	Average variable cost	Average total cost	Marginal cost
1	60	45	105
2	30	42.5	72.5	45
3	20	40	60	35
4	15	37.5	52	30
5	12	37	49	35
6	10	37.50	47.5	40
7	8.57	38.57	47.14	45
8	7.5	40.63	48.13	55
9	6.67	43.33	50	65
10	6	46.5	52.5	75

A profit maximizing firm produces output at the point where the marginal revenue equals to or greater than the marginal cost. Marginal revenue is equal to the price. At the price of $56, the marginal revenue is just greater than the marginal cost at the output level of 8 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(56×8)−(48.13×8)=448−385.04=62.96

The economic profit is $62.96.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Sub part (b):

To determine

Calculation of economic profit.

Sub part (b):

Expert Solution

Explanation of Solution

At the price of $41, the marginal revenue is greater than the marginal cost at the output level of 6 units. Thus, the profit maximizing output level is 6 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(41×6)−(47.5×6)=246−285=−39

The economic profit is -$39.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Sub part (c):

To determine

Shutdown decision.

Sub part (c):

Expert Solution

Explanation of Solution

At the price of $32, the marginal revenue is greater than the marginal cost at the output level of 4 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost ($37.5) is greater than the price. Thus, the firm will shutdown at this price. The firm’s economic loss is at the fixed cost $60.

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Sub part (d):

To determine

Average variable cost and profit maximization.

Sub part (d):

Expert Solution

Explanation of Solution

Output at the price $26 is zero since the marginal revenue is less than the marginal cost at all the output levels.

Profit can be calculated by using the following formula.

Profit=(Price×Quantity)−Fixed cost−(Average variable cost×Quantity) (1)

Substitute the respective values in equation (1) to calculate the profit at the price $26.

Profit=(26×0)−60−(0×0)=−60

Thus, profit is -$60.

Quantity supply can be calculated by using the following formula.

Quantity=QuantityIndividual firm×Total number of firm (2)

Substitute the respective values in equation (2) to calculate the total supply for 1,500 firms.

Quantity=0×1,500=0

Total supply at price $26 is 0 units.

Table -2 shows the output level obtained by using profit maximization condition (MR≥MC) . Also, it shows the profit or loss and the quantity supply that obtained by using the equations (1) and (2).

Table -2

Price	Quantity supplied for a single firm	Profit or loss	Quantity supplied for 1,500 firms
26	0	-60	0
32	0	-60	0
38	5	-55	7,500
41	6	-39	9,000
46	7	-7.98	10,500
56	8	62.96	12,000
66	9	144	13,500

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Sub part (e):

To determine

Supply schedule.

Sub part (e):

Expert Solution

Explanation of Solution

Supply schedule refers to the total supply of the industry at different price levels. This can be derived from the Table -2, where column 1is price and column 4 is supply. This is given in the Table -3.

Table -3

Price	Quantity supply
26	0
32	0
38	7,500
41	9,000
46	10,500
56	12,000
66	13,500

Economics Concept Introduction

Concept introduction:

Supply schedule: Supply schedule refers to the table that shows the availability of supply at different price level.

Sub part (f):

To determine

Scenario for contraction in the production.

Sub part (f):

Expert Solution

Explanation of Solution

Table -4 shows the demand and supply schedule.

Table -4

Price	Quantity demanded	Quantity supply
26	17,000	0
32	15,000	0
38	13,500	7,500
41	12,000	9,000
46	10,500	10,500
56	9,500	12,000
66	8,000	13,500

In Table -4, the market is in equilibrium at the point where the demand and supply is equal (10,500 units) at the price level $46. Thus, equilibrium price is $46 and equilibrium quantity is $10,500. Thus, the individual firm’s output is 7 (10,5001500) units. Profit is -$7.14 (46−47.14) per firm. Since there is a loss, in the firm, there would be a contraction in the long run till it reaches a normal profit.

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Answer 2

Question

Chapter 10, Problem 4P

Sub part (a):

To determine

Calculation of economic profit.

Sub part (a):

Expert Solution

Explanation of Solution

Table -1 shows the data for the purely competitive producer

Table -1

Quantity	Average fixed cost	Average variable cost	Average total cost	Marginal cost
1	60	45	105
2	30	42.5	72.5	45
3	20	40	60	35
4	15	37.5	52	30
5	12	37	49	35
6	10	37.50	47.5	40
7	8.57	38.57	47.14	45
8	7.5	40.63	48.13	55
9	6.67	43.33	50	65
10	6	46.5	52.5	75

A profit maximizing firm produces output at the point where the marginal revenue equals to or greater than the marginal cost. Marginal revenue is equal to the price. At the price of $56, the marginal revenue is just greater than the marginal cost at the output level of 8 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(56×8)−(48.13×8)=448−385.04=62.96

The economic profit is $62.96.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Sub part (b):

To determine

Calculation of economic profit.

Sub part (b):

Expert Solution

Explanation of Solution

At the price of $41, the marginal revenue is greater than the marginal cost at the output level of 6 units. Thus, the profit maximizing output level is 6 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(41×6)−(47.5×6)=246−285=−39

The economic profit is -$39.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Sub part (c):

To determine

Shutdown decision.

Sub part (c):

Expert Solution

Explanation of Solution

At the price of $32, the marginal revenue is greater than the marginal cost at the output level of 4 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost ($37.5) is greater than the price. Thus, the firm will shutdown at this price. The firm’s economic loss is at the fixed cost $60.

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Sub part (d):

To determine

Average variable cost and profit maximization.

Sub part (d):

Expert Solution

Explanation of Solution

Output at the price $26 is zero since the marginal revenue is less than the marginal cost at all the output levels.

Profit can be calculated by using the following formula.

Profit=(Price×Quantity)−Fixed cost−(Average variable cost×Quantity) (1)

Substitute the respective values in equation (1) to calculate the profit at the price $26.

Profit=(26×0)−60−(0×0)=−60

Thus, profit is -$60.

Quantity supply can be calculated by using the following formula.

Quantity=QuantityIndividual firm×Total number of firm (2)

Substitute the respective values in equation (2) to calculate the total supply for 1,500 firms.

Quantity=0×1,500=0

Total supply at price $26 is 0 units.

Table -2 shows the output level obtained by using profit maximization condition (MR≥MC) . Also, it shows the profit or loss and the quantity supply that obtained by using the equations (1) and (2).

Table -2

Price	Quantity supplied for a single firm	Profit or loss	Quantity supplied for 1,500 firms
26	0	-60	0
32	0	-60	0
38	5	-55	7,500
41	6	-39	9,000
46	7	-7.98	10,500
56	8	62.96	12,000
66	9	144	13,500

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Sub part (e):

To determine

Supply schedule.

Sub part (e):

Expert Solution

Explanation of Solution

Supply schedule refers to the total supply of the industry at different price levels. This can be derived from the Table -2, where column 1is price and column 4 is supply. This is given in the Table -3.

Table -3

Price	Quantity supply
26	0
32	0
38	7,500
41	9,000
46	10,500
56	12,000
66	13,500

Economics Concept Introduction

Concept introduction:

Supply schedule: Supply schedule refers to the table that shows the availability of supply at different price level.

Sub part (f):

To determine

Scenario for contraction in the production.

Sub part (f):

Expert Solution

Explanation of Solution

Table -4 shows the demand and supply schedule.

Table -4

Price	Quantity demanded	Quantity supply
26	17,000	0
32	15,000	0
38	13,500	7,500
41	12,000	9,000
46	10,500	10,500
56	9,500	12,000
66	8,000	13,500

In Table -4, the market is in equilibrium at the point where the demand and supply is equal (10,500 units) at the price level $46. Thus, equilibrium price is $46 and equilibrium quantity is $10,500. Thus, the individual firm’s output is 7 (10,5001500) units. Profit is -$7.14 (46−47.14) per firm. Since there is a loss, in the firm, there would be a contraction in the long run till it reaches a normal profit.

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Answer 3

Question

Chapter 10, Problem 4P

Sub part (a):

To determine

Calculation of economic profit.

Sub part (a):

Expert Solution

Explanation of Solution

Table -1 shows the data for the purely competitive producer

Table -1

Quantity	Average fixed cost	Average variable cost	Average total cost	Marginal cost
1	60	45	105
2	30	42.5	72.5	45
3	20	40	60	35
4	15	37.5	52	30
5	12	37	49	35
6	10	37.50	47.5	40
7	8.57	38.57	47.14	45
8	7.5	40.63	48.13	55
9	6.67	43.33	50	65
10	6	46.5	52.5	75

A profit maximizing firm produces output at the point where the marginal revenue equals to or greater than the marginal cost. Marginal revenue is equal to the price. At the price of $56, the marginal revenue is just greater than the marginal cost at the output level of 8 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(56×8)−(48.13×8)=448−385.04=62.96

The economic profit is $62.96.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Sub part (b):

To determine

Calculation of economic profit.

Sub part (b):

Expert Solution

Explanation of Solution

At the price of $41, the marginal revenue is greater than the marginal cost at the output level of 6 units. Thus, the profit maximizing output level is 6 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(41×6)−(47.5×6)=246−285=−39

The economic profit is -$39.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Sub part (c):

To determine

Shutdown decision.

Sub part (c):

Expert Solution

Explanation of Solution

At the price of $32, the marginal revenue is greater than the marginal cost at the output level of 4 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost ($37.5) is greater than the price. Thus, the firm will shutdown at this price. The firm’s economic loss is at the fixed cost $60.

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Sub part (d):

To determine

Average variable cost and profit maximization.

Sub part (d):

Expert Solution

Explanation of Solution

Output at the price $26 is zero since the marginal revenue is less than the marginal cost at all the output levels.

Profit can be calculated by using the following formula.

Profit=(Price×Quantity)−Fixed cost−(Average variable cost×Quantity) (1)

Substitute the respective values in equation (1) to calculate the profit at the price $26.

Profit=(26×0)−60−(0×0)=−60

Thus, profit is -$60.

Quantity supply can be calculated by using the following formula.

Quantity=QuantityIndividual firm×Total number of firm (2)

Substitute the respective values in equation (2) to calculate the total supply for 1,500 firms.

Quantity=0×1,500=0

Total supply at price $26 is 0 units.

Table -2 shows the output level obtained by using profit maximization condition (MR≥MC) . Also, it shows the profit or loss and the quantity supply that obtained by using the equations (1) and (2).

Table -2

Price	Quantity supplied for a single firm	Profit or loss	Quantity supplied for 1,500 firms
26	0	-60	0
32	0	-60	0
38	5	-55	7,500
41	6	-39	9,000
46	7	-7.98	10,500
56	8	62.96	12,000
66	9	144	13,500

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Sub part (e):

To determine

Supply schedule.

Sub part (e):

Expert Solution

Explanation of Solution

Supply schedule refers to the total supply of the industry at different price levels. This can be derived from the Table -2, where column 1is price and column 4 is supply. This is given in the Table -3.

Table -3

Price	Quantity supply
26	0
32	0
38	7,500
41	9,000
46	10,500
56	12,000
66	13,500

Economics Concept Introduction

Concept introduction:

Supply schedule: Supply schedule refers to the table that shows the availability of supply at different price level.

Sub part (f):

To determine

Scenario for contraction in the production.

Sub part (f):

Expert Solution

Explanation of Solution

Table -4 shows the demand and supply schedule.

Table -4

Price	Quantity demanded	Quantity supply
26	17,000	0
32	15,000	0
38	13,500	7,500
41	12,000	9,000
46	10,500	10,500
56	9,500	12,000
66	8,000	13,500

In Table -4, the market is in equilibrium at the point where the demand and supply is equal (10,500 units) at the price level $46. Thus, equilibrium price is $46 and equilibrium quantity is $10,500. Thus, the individual firm’s output is 7 (10,5001500) units. Profit is -$7.14 (46−47.14) per firm. Since there is a loss, in the firm, there would be a contraction in the long run till it reaches a normal profit.

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Answer 4

Question

Chapter 10, Problem 4P

Sub part (a):

To determine

Calculation of economic profit.

Sub part (a):

Expert Solution

Explanation of Solution

Table -1 shows the data for the purely competitive producer

Table -1

Quantity	Average fixed cost	Average variable cost	Average total cost	Marginal cost
1	60	45	105
2	30	42.5	72.5	45
3	20	40	60	35
4	15	37.5	52	30
5	12	37	49	35
6	10	37.50	47.5	40
7	8.57	38.57	47.14	45
8	7.5	40.63	48.13	55
9	6.67	43.33	50	65
10	6	46.5	52.5	75

A profit maximizing firm produces output at the point where the marginal revenue equals to or greater than the marginal cost. Marginal revenue is equal to the price. At the price of $56, the marginal revenue is just greater than the marginal cost at the output level of 8 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(56×8)−(48.13×8)=448−385.04=62.96

The economic profit is $62.96.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Sub part (b):

To determine

Calculation of economic profit.

Sub part (b):

Expert Solution

Explanation of Solution

At the price of $41, the marginal revenue is greater than the marginal cost at the output level of 6 units. Thus, the profit maximizing output level is 6 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(41×6)−(47.5×6)=246−285=−39

The economic profit is -$39.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Sub part (c):

To determine

Shutdown decision.

Sub part (c):

Expert Solution

Explanation of Solution

At the price of $32, the marginal revenue is greater than the marginal cost at the output level of 4 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost ($37.5) is greater than the price. Thus, the firm will shutdown at this price. The firm’s economic loss is at the fixed cost $60.

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Sub part (d):

To determine

Average variable cost and profit maximization.

Sub part (d):

Expert Solution

Explanation of Solution

Output at the price $26 is zero since the marginal revenue is less than the marginal cost at all the output levels.

Profit can be calculated by using the following formula.

Profit=(Price×Quantity)−Fixed cost−(Average variable cost×Quantity) (1)

Substitute the respective values in equation (1) to calculate the profit at the price $26.

Profit=(26×0)−60−(0×0)=−60

Thus, profit is -$60.

Quantity supply can be calculated by using the following formula.

Quantity=QuantityIndividual firm×Total number of firm (2)

Substitute the respective values in equation (2) to calculate the total supply for 1,500 firms.

Quantity=0×1,500=0

Total supply at price $26 is 0 units.

Table -2 shows the output level obtained by using profit maximization condition (MR≥MC) . Also, it shows the profit or loss and the quantity supply that obtained by using the equations (1) and (2).

Table -2

Price	Quantity supplied for a single firm	Profit or loss	Quantity supplied for 1,500 firms
26	0	-60	0
32	0	-60	0
38	5	-55	7,500
41	6	-39	9,000
46	7	-7.98	10,500
56	8	62.96	12,000
66	9	144	13,500

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Sub part (e):

To determine

Supply schedule.

Sub part (e):

Expert Solution

Explanation of Solution

Supply schedule refers to the total supply of the industry at different price levels. This can be derived from the Table -2, where column 1is price and column 4 is supply. This is given in the Table -3.

Table -3

Price	Quantity supply
26	0
32	0
38	7,500
41	9,000
46	10,500
56	12,000
66	13,500

Economics Concept Introduction

Concept introduction:

Supply schedule: Supply schedule refers to the table that shows the availability of supply at different price level.

Sub part (f):

To determine

Scenario for contraction in the production.

Sub part (f):

Expert Solution

Explanation of Solution

Table -4 shows the demand and supply schedule.

Table -4

Price	Quantity demanded	Quantity supply
26	17,000	0
32	15,000	0
38	13,500	7,500
41	12,000	9,000
46	10,500	10,500
56	9,500	12,000
66	8,000	13,500

In Table -4, the market is in equilibrium at the point where the demand and supply is equal (10,500 units) at the price level $46. Thus, equilibrium price is $46 and equilibrium quantity is $10,500. Thus, the individual firm’s output is 7 (10,5001500) units. Profit is -$7.14 (46−47.14) per firm. Since there is a loss, in the firm, there would be a contraction in the long run till it reaches a normal profit.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 10, Problem 4P

Sub part (a):

To determine

Calculation of economic profit.

Sub part (a):

Expert Solution

Explanation of Solution

Table -1 shows the data for the purely competitive producer

Table -1

Quantity	Average fixed cost	Average variable cost	Average total cost	Marginal cost
1	60	45	105
2	30	42.5	72.5	45
3	20	40	60	35
4	15	37.5	52	30
5	12	37	49	35
6	10	37.50	47.5	40
7	8.57	38.57	47.14	45
8	7.5	40.63	48.13	55
9	6.67	43.33	50	65
10	6	46.5	52.5	75

A profit maximizing firm produces output at the point where the marginal revenue equals to or greater than the marginal cost. Marginal revenue is equal to the price. At the price of $56, the marginal revenue is just greater than the marginal cost at the output level of 8 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(56×8)−(48.13×8)=448−385.04=62.96

The economic profit is $62.96.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Sub part (b):

To determine

Calculation of economic profit.

Sub part (b):

Expert Solution

Explanation of Solution

At the price of $41, the marginal revenue is greater than the marginal cost at the output level of 6 units. Thus, the profit maximizing output level is 6 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(41×6)−(47.5×6)=246−285=−39

The economic profit is -$39.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Sub part (c):

To determine

Shutdown decision.

Sub part (c):

Expert Solution

Explanation of Solution

At the price of $32, the marginal revenue is greater than the marginal cost at the output level of 4 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost ($37.5) is greater than the price. Thus, the firm will shutdown at this price. The firm’s economic loss is at the fixed cost $60.

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Sub part (d):

To determine

Average variable cost and profit maximization.

Sub part (d):

Expert Solution

Explanation of Solution

Output at the price $26 is zero since the marginal revenue is less than the marginal cost at all the output levels.

Profit can be calculated by using the following formula.

Profit=(Price×Quantity)−Fixed cost−(Average variable cost×Quantity) (1)

Substitute the respective values in equation (1) to calculate the profit at the price $26.

Profit=(26×0)−60−(0×0)=−60

Thus, profit is -$60.

Quantity supply can be calculated by using the following formula.

Quantity=QuantityIndividual firm×Total number of firm (2)

Substitute the respective values in equation (2) to calculate the total supply for 1,500 firms.

Quantity=0×1,500=0

Total supply at price $26 is 0 units.

Table -2 shows the output level obtained by using profit maximization condition (MR≥MC) . Also, it shows the profit or loss and the quantity supply that obtained by using the equations (1) and (2).

Table -2

Price	Quantity supplied for a single firm	Profit or loss	Quantity supplied for 1,500 firms
26	0	-60	0
32	0	-60	0
38	5	-55	7,500
41	6	-39	9,000
46	7	-7.98	10,500
56	8	62.96	12,000
66	9	144	13,500

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Sub part (e):

To determine

Supply schedule.

Sub part (e):

Expert Solution

Explanation of Solution

Supply schedule refers to the total supply of the industry at different price levels. This can be derived from the Table -2, where column 1is price and column 4 is supply. This is given in the Table -3.

Table -3

Price	Quantity supply
26	0
32	0
38	7,500
41	9,000
46	10,500
56	12,000
66	13,500

Economics Concept Introduction

Concept introduction:

Supply schedule: Supply schedule refers to the table that shows the availability of supply at different price level.

Sub part (f):

To determine

Scenario for contraction in the production.

Sub part (f):

Expert Solution

Explanation of Solution

Table -4 shows the demand and supply schedule.

Table -4

Price	Quantity demanded	Quantity supply
26	17,000	0
32	15,000	0
38	13,500	7,500
41	12,000	9,000
46	10,500	10,500
56	9,500	12,000
66	8,000	13,500

In Table -4, the market is in equilibrium at the point where the demand and supply is equal (10,500 units) at the price level $46. Thus, equilibrium price is $46 and equilibrium quantity is $10,500. Thus, the individual firm’s output is 7 (10,5001500) units. Profit is -$7.14 (46−47.14) per firm. Since there is a loss, in the firm, there would be a contraction in the long run till it reaches a normal profit.

Answer 6

Chapter 10, Problem 4P

Sub part (a):

To determine

Calculation of economic profit.

Sub part (a):

Expert Solution

Explanation of Solution

Table -1 shows the data for the purely competitive producer

Table -1

Quantity	Average fixed cost	Average variable cost	Average total cost	Marginal cost
1	60	45	105
2	30	42.5	72.5	45
3	20	40	60	35
4	15	37.5	52	30
5	12	37	49	35
6	10	37.50	47.5	40
7	8.57	38.57	47.14	45
8	7.5	40.63	48.13	55
9	6.67	43.33	50	65
10	6	46.5	52.5	75

A profit maximizing firm produces output at the point where the marginal revenue equals to or greater than the marginal cost. Marginal revenue is equal to the price. At the price of $56, the marginal revenue is just greater than the marginal cost at the output level of 8 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(56×8)−(48.13×8)=448−385.04=62.96

The economic profit is $62.96.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Answer 7

Chapter 10, Problem 4P

Sub part (a):

To determine

Calculation of economic profit.

Answer 8

Sub part (a):

Expert Solution

Explanation of Solution

Table -1 shows the data for the purely competitive producer

Table -1

Quantity	Average fixed cost	Average variable cost	Average total cost	Marginal cost
1	60	45	105
2	30	42.5	72.5	45
3	20	40	60	35
4	15	37.5	52	30
5	12	37	49	35
6	10	37.50	47.5	40
7	8.57	38.57	47.14	45
8	7.5	40.63	48.13	55
9	6.67	43.33	50	65
10	6	46.5	52.5	75

A profit maximizing firm produces output at the point where the marginal revenue equals to or greater than the marginal cost. Marginal revenue is equal to the price. At the price of $56, the marginal revenue is just greater than the marginal cost at the output level of 8 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(56×8)−(48.13×8)=448−385.04=62.96

The economic profit is $62.96.

Answer 9

Sub part (a):

Expert Solution

Answer 10

Sub part (a):

Expert Solution

Answer 11

Expert Solution

Answer 12

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Answer 13

Sub part (b):

To determine

Calculation of economic profit.

Sub part (b):

Expert Solution

Explanation of Solution

At the price of $41, the marginal revenue is greater than the marginal cost at the output level of 6 units. Thus, the profit maximizing output level is 6 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(41×6)−(47.5×6)=246−285=−39

The economic profit is -$39.

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Answer 14

Sub part (b):

To determine

Calculation of economic profit.

Answer 15

Sub part (b):

Expert Solution

Explanation of Solution

At the price of $41, the marginal revenue is greater than the marginal cost at the output level of 6 units. Thus, the profit maximizing output level is 6 units. At this point, the average variable cost is less than the price. Thus, the firm is operating in the short run.

Economic profit can be calculated as follows:

Economic profit=(Price×Quantity)−(Average total cost×Quantity)=(41×6)−(47.5×6)=246−285=−39

The economic profit is -$39.

Answer 16

Sub part (b):

Expert Solution

Answer 17

Sub part (b):

Expert Solution

Answer 18

Expert Solution

Answer 19

Economics Concept Introduction

Concept introduction:

Accounting profit: Accounting profit refers to the total revenue minus total explicit cost

Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.

Answer 20

Sub part (c):

To determine

Shutdown decision.

Sub part (c):

Expert Solution

Explanation of Solution

At the price of $32, the marginal revenue is greater than the marginal cost at the output level of 4 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost ($37.5) is greater than the price. Thus, the firm will shutdown at this price. The firm’s economic loss is at the fixed cost $60.

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Answer 21

Sub part (c):

To determine

Shutdown decision.

Answer 22

Sub part (c):

Expert Solution

Explanation of Solution

At the price of $32, the marginal revenue is greater than the marginal cost at the output level of 4 units. Thus, the profit maximizing output level is 8 units. At this point, the average variable cost ($37.5) is greater than the price. Thus, the firm will shutdown at this price. The firm’s economic loss is at the fixed cost $60.

Answer 23

Sub part (c):

Expert Solution

Answer 24

Sub part (c):

Expert Solution

Answer 25

Expert Solution

Answer 26

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Answer 27

Sub part (d):

To determine

Average variable cost and profit maximization.

Sub part (d):

Expert Solution

Explanation of Solution

Output at the price $26 is zero since the marginal revenue is less than the marginal cost at all the output levels.

Profit can be calculated by using the following formula.

Profit=(Price×Quantity)−Fixed cost−(Average variable cost×Quantity) (1)

Substitute the respective values in equation (1) to calculate the profit at the price $26.

Profit=(26×0)−60−(0×0)=−60

Thus, profit is -$60.

Quantity supply can be calculated by using the following formula.

Quantity=QuantityIndividual firm×Total number of firm (2)

Substitute the respective values in equation (2) to calculate the total supply for 1,500 firms.

Quantity=0×1,500=0

Total supply at price $26 is 0 units.

Table -2 shows the output level obtained by using profit maximization condition (MR≥MC) . Also, it shows the profit or loss and the quantity supply that obtained by using the equations (1) and (2).

Table -2

Price	Quantity supplied for a single firm	Profit or loss	Quantity supplied for 1,500 firms
26	0	-60	0
32	0	-60	0
38	5	-55	7,500
41	6	-39	9,000
46	7	-7.98	10,500
56	8	62.96	12,000
66	9	144	13,500

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Answer 28

Sub part (d):

To determine

Average variable cost and profit maximization.

Answer 29

Sub part (d):

Expert Solution

Explanation of Solution

Output at the price $26 is zero since the marginal revenue is less than the marginal cost at all the output levels.

Profit can be calculated by using the following formula.

Profit=(Price×Quantity)−Fixed cost−(Average variable cost×Quantity) (1)

Substitute the respective values in equation (1) to calculate the profit at the price $26.

Profit=(26×0)−60−(0×0)=−60

Thus, profit is -$60.

Quantity supply can be calculated by using the following formula.

Quantity=QuantityIndividual firm×Total number of firm (2)

Substitute the respective values in equation (2) to calculate the total supply for 1,500 firms.

Quantity=0×1,500=0

Total supply at price $26 is 0 units.

Table -2 shows the output level obtained by using profit maximization condition (MR≥MC) . Also, it shows the profit or loss and the quantity supply that obtained by using the equations (1) and (2).

Table -2

Price	Quantity supplied for a single firm	Profit or loss	Quantity supplied for 1,500 firms
26	0	-60	0
32	0	-60	0
38	5	-55	7,500
41	6	-39	9,000
46	7	-7.98	10,500
56	8	62.96	12,000
66	9	144	13,500

Answer 30

Sub part (d):

Expert Solution

Answer 31

Sub part (d):

Expert Solution

Answer 32

Expert Solution

Answer 33

Economics Concept Introduction

Concept introduction:

Pure competition: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

Profit maximizing output: Profit maximizing output occur at the point where the marginal revenue and marginal cost intersect each other.

Shutdown point: In the short run, a firm shuts down at the point where the price of goods is less than the average variable cost.

Answer 34

Sub part (e):

To determine

Supply schedule.

Sub part (e):

Expert Solution

Explanation of Solution

Supply schedule refers to the total supply of the industry at different price levels. This can be derived from the Table -2, where column 1is price and column 4 is supply. This is given in the Table -3.

Table -3

Price	Quantity supply
26	0
32	0
38	7,500
41	9,000
46	10,500
56	12,000
66	13,500

Economics Concept Introduction

Concept introduction:

Supply schedule: Supply schedule refers to the table that shows the availability of supply at different price level.

Answer 35

Sub part (e):

To determine

Supply schedule.

Answer 36

Sub part (e):

Expert Solution

Explanation of Solution

Supply schedule refers to the total supply of the industry at different price levels. This can be derived from the Table -2, where column 1is price and column 4 is supply. This is given in the Table -3.

Table -3

Price	Quantity supply
26	0
32	0
38	7,500
41	9,000
46	10,500
56	12,000
66	13,500

Answer 37

Sub part (e):

Expert Solution

Answer 38

Sub part (e):

Expert Solution

Answer 39

Expert Solution

Answer 40

Economics Concept Introduction

Concept introduction:

Supply schedule: Supply schedule refers to the table that shows the availability of supply at different price level.

Answer 41

Sub part (f):

To determine

Scenario for contraction in the production.

Sub part (f):

Expert Solution

Explanation of Solution

Table -4 shows the demand and supply schedule.

Table -4

Price	Quantity demanded	Quantity supply
26	17,000	0
32	15,000	0
38	13,500	7,500
41	12,000	9,000
46	10,500	10,500
56	9,500	12,000
66	8,000	13,500

In Table -4, the market is in equilibrium at the point where the demand and supply is equal (10,500 units) at the price level $46. Thus, equilibrium price is $46 and equilibrium quantity is $10,500. Thus, the individual firm’s output is 7 (10,5001500) units. Profit is -$7.14 (46−47.14) per firm. Since there is a loss, in the firm, there would be a contraction in the long run till it reaches a normal profit.

Answer 42

Sub part (f):

To determine

Scenario for contraction in the production.

Answer 43

Sub part (f):

Expert Solution

Explanation of Solution

Table -4 shows the demand and supply schedule.

Table -4

Price	Quantity demanded	Quantity supply
26	17,000	0
32	15,000	0
38	13,500	7,500
41	12,000	9,000
46	10,500	10,500
56	9,500	12,000
66	8,000	13,500

In Table -4, the market is in equilibrium at the point where the demand and supply is equal (10,500 units) at the price level $46. Thus, equilibrium price is $46 and equilibrium quantity is $10,500. Thus, the individual firm’s output is 7 (10,5001500) units. Profit is -$7.14 (46−47.14) per firm. Since there is a loss, in the firm, there would be a contraction in the long run till it reaches a normal profit.