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3 years ago

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A purely competitive firm finds that the market price for its product is $25.00. It has a fixed cost of $100.00 and a variable c

ost of $17.50 per unit for the first 50 units and then $30.00 per unit for all successive units.
Does price exceed average variable cost for the first 50 units?

What is the average variable cost for the first 50 units?

What is the average variable cost for the first 100 units?

1 answer:

Likurg_2 [28]3 years ago

8 0

Answer:

Yes; $17.50; $23.75

Explanation:

A purely competitive firm finds that the market price for its product is $25.00.

It has a fixed cost of $100.00 and a variable cost of $17.50 per unit for the first 50 units and then $30.00 per unit for all successive units.

The price for the first 50 units is $25 while the AVC is $17.50. So, yes, the price exceeds the AVC for the first 50 units.

The AVC for the first 50 units is $17.5 as mentioned in the question.

The Total variable cost for the first 100 units

= $50\ \times\ 17.5\ +\ 50\ \times\ 30$

= $875 + $1500

= $2,375

The average variable cost for first 100 units

= $\frac{TVC}{Q}$

= $\frac{2,375}{100}$

= $23.75

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