Question

A firm in a purely competitive industry is currently producing 1,200 units per day at a total cost of $700. If the firm produced 1,000 units per day, its total cost would be $450, and if it produced 700 units per day, its total cost would be $425.
Instructions: In parts a and c, round your answers to 2 decimal places. In part d, round your answer to 1 decimal place.

a. What are the firm's ATC at these three levels of production?

At 1,200 units per day, ATC = $.

At 1,000 units per day, ATC = $.

At 700 units per day, ATC = $.

b. If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium? (Click to select)NoYes.

c. From what you know about these firms’ cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium? $.

d. If that price ends up being the market price and if the normal rate of profit is 10 percent, then how big will each firm’s accounting profit per unit be? cents per unit.

Answer 1

Answer:(a) $0.58, $0.45, $0.60 (b ) No the industry is not in long run competitive equilibrium (c) The highest possible price is $0.60 (d) The firm did not earn a profit in terms of accounting profit but loss of ($5)

Explanation:

To calculate the ATC

ATC = TC/ Quantity

At 1,200 unit per day

= 700/1,200

= $0.58

At 1,000 unit per day

= 450/1,000

= $0.45

At 700 unit per day

= 425/700

= $0.60

(b) No the industry is not in the long run competitive equilibrium because the cost is not stable it moves from $700 to $450 and then to $$425

(c) The highest possible price that could exist is $0.60

(d) since profit = Total Revenue - Total Cost

Total Revenue = price × Quantity, since the ATC is $0.60 and Total Cost = $425,Quantity = 700

$0.60 × 700 = 420

Therefore $420 - $425 = -$5

Therefore, in Accounting there is no profit but loss of ($5)