Question

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. What is the economic profit of this corporation?

Answer 1

Answer:

40$

Explanation:

First of all we need to know the formula of the profit function in perfectly competitive market.

π(Profit of Firm)= TR(Total Revenue)-TC(Total Cost)=P(price)*Q(quantity)-(Variable Cost +Fixed Cost)

We have:

Q(quantity)=20units

P(price)=10$

Fixed Cost=100$

Average Variable Cost=3$ for 20 units, so we need to find Variable Cost.  

If we know: Average Variable Cost=Variable Cost/quantity of units==>  

3$=Variable Cost/20==> so, Variable Cost = 20*3=60$

Now let’s calculate the profit:

π(Profit of Firm)=TR(Total Revenue)-TC(Total Cost)=P(price)*Q(quantity)-(Variable Cost +Fixed Cost)=20*10-(100+60)=200-160=40$

As a result of the calculation, we  have found out that the profit is 40$

Answer 2

Answer:

$40

Explanation:

Economic profit is determined by the difference between the revenue from sales at the market value and the variable and fixed costs to produce the current output of 20 units.

$P = (20*\ 10) - (20*\ 3) - 100\\P = \ 40$

The economic profit of XYZ corporation is $40.