Question

(a) At a product price of $67.00 (b) At a product price of $42.00 (c) At a product price of $33.00 Will this firm produce in the short run? Yes Correct Yes Correct No Correct If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? output = Not attemptedunits per firm Loss-minimizing Correct output = 6 6 Correct units per firm Not applicable Correct output = 0 0 Correct units per firm What economic profit or loss will the firm realize per unit of output? per unit = $ Not attempted Loss Correct per unit = $ 5.4 5.4 Incorrect Total loss Correct = $

Answer 1

a) Yes, $67 exceeds the loss—minimizing output.

Using the MR

They will produce 9 units.

Profits per unit = $67 - $50 = $17

Total profit = $153.

(b) Yes, $42 exceeds the loss—minimizing output.

Using the MR

They will produce 6 units

Loss per unit is = $42 - $47.50 = $5.50

Total loss = $33 (= 6 x $5.50), which is less than the total fixed cost of $60.

c) No, because $33 is less than AVC. If it did produce, the quantity will be 4—By producing 4 units, it would lose $78 [= 4 ($33 - $52.50)]. and if they didn't produce, it would lose only the total fixed cost of $60.